Tencent is slashing its holdings in JD.com, China’s second-largest e-commerce company, in order to curry favour with Beijing, which has been cracking down on internet behemoths in an effort to reign in their rising power and influence.
Tencent (TCEHY) plans to pay a one-time dividend to its shareholders of more than $16 billion on its interest in JD.com (JD), the Chinese gaming and social media giant announced Thursday in a stock exchange filing. Tencent proposes to distribute 457 million shares, representing 86.4 percent of its holding in JD.com and 14.7 percent of JD.com’s total issued shares.
Tencent currently owns 17 percent of JD.com. Its stake in JD.com will reduce to 2.3 percent after the distribution, meaning it will no longer be the company’s top stakeholder.
Tencent’s unexpected pullback comes at a time when Beijing is putting a lot of pressure on the country’s digital behemoths.
China has expanded its surveillance of the internet industry in the last year, publishing detailed guidelines aimed at combating unfair competition, slapping corporations with hefty fines, and requiring certain companies to entirely reorganise their operations.
JD.com has reached a point where it can fund its own expansion, according to Tencent’s report on Thursday.
As a result, Tencent believes it is “an suitable time” to transfer the bulk of the shareholding to its shareholders.
According to Yeap Jun Rong, market strategist for IG, the move may limit Tencent’s “dominance” in the industry and “is potentially an attempt to shift towards fairer competition, as well as to be more in line with the agenda for China authorities,” in a research note published on Thursday.
According to the filing, Tencent President Martin Lau would resign as a director of JD.com as part of the agreement.
Tencent and JD.com announced in separate statements on Thursday that they will “continue to maintain their mutually advantageous commercial relationship,” including their continuing strategic collaboration arrangement.
Tencent’s stock increased by more than 4% in Hong Kong on Thursday, while JD.com’s stock fell by 7%.