Tencent raises $3 billion by reducing its stake in Shopee owner Sea

Authors: Anshuman Daga, Kane Wu and Scott Murdoch

SINGAPORE (Reuters) – Chinese gaming and social media company Tencent Holdings Ltd raised $3 billion by selling 14.5 million shares at $208 each of Sea, which owns e-commerce company Shopee, according to a term sheet reported on Wednesday by Reuters.

Tencent said late Tuesday that it had struck a deal to reduce its stake in the Singapore-based gaming and e-commerce group to 18.7% from 21.3%. The company plans to maintain a significant majority of its stake in Sea in the long term.

The sale comes after Tencent said last month it would divest $16.4 billion of its stake in JD.com, weakening its ties to China’s second-largest e-commerce company amid pressure from a wide-ranging regulatory crackdown Beijing on technology companies.

Sea shares fell 11.4% to $197.8 in New York on Tuesday on news of the divestment. Before the announcement, Sea said Tencent had also agreed to reduce its voting stake in the company to less than 10%.

“We believe that less control over voting rights could reduce potential conflict if Tencent’s gaming teams plan to publish more games directly to global markets and help reduce any potential geopolitical friction if/when Sea plans to more strategically expand into new markets in larger countries.” Citi analysts said in their Wednesday report.

Sea stated that Tencent and its affiliates have filed irrevocable notice of conversion of all of its Class B common stock.

Following the conversion, all of Sea’s outstanding Class B shares will be owned by Forrest Li, founder, chairman and CEO of Sea, Southeast Asia’s most valued company with a market capitalization of $110 billion.

Tencent and Sea declined to comment on the share sale price.

Guotai Junan International analyst Vincent Liu said he didn’t find Tencent’s decision to reduce its stake in Sea surprising given the recent divestment of JD.com. Tencent has a huge, diversified investment portfolio, so buying or selling shares in companies it invests in could be considered a “regular activity,” he said.

“On the other hand, we believe that this reflects some changes in Tencent’s business strategy, especially in the context of tightening antitrust regulations,” he added.

Sea’s shares are down 47% from a record high of $372 reached in October, but have still quintupled over the past three years.

The company started as a gaming company in 2009 and later expanded into e-commerce and food delivery, benefiting from huge consumer demand for its services, especially during pandemic restrictions.

Sea is currently expanding its e-commerce operations globally.

“The divestment provides Tencent with resources to finance other investments and social initiatives,” Tencent said in a statement.

When the deal began on Tuesday, he sold shares at the lower end of the $208-$212 per share range. The agreed price included a 6.8% discount to Sea’s Monday closing price of $223.3.

Tencent shares fell 3.5% on Wednesday in the broader market, dragged by tech stocks.

Tencent will be placed under a suspension period that limits further sales of Sea shares by Tencent over the next six months.

Separately, Sea is proposing to increase the number of votes per share of Class B common stock to 15 from three.

“The board believes that as Sea has grown significantly to become a leading global consumer Internet company, it is in the company’s best interest to pursue its long-term growth strategies to further clarify its capital structure through the changes contemplated,” the report said . he said.

Sea said the changes must be approved by shareholders.

It said that with the changes, the outstanding shares of Class B common stock held by Li are expected to represent about 57% of the voting power, up from about 52%.

Separately, Li holds approximately 54% of the total voting power relative to the size and composition of Sea’s board.

(Reporting by Anshuman Daga in Singapore, Kane Wu and Scott Murdoch in Hong Kong and Nivedita Balu in Bengaluru; Additional reporting by Brenda Goh in Shanghai; Editing by Shri Navaratnam and Stephen Coates)