Meituan shares plunged after a report that Tencent Holdings plans to sell all or most of its 17% stake in the food delivery giant worth about $24 billion.
Tencent hired financial advisers recently to examine how best to cash in on its eight-year-old investment and mollify regulators, sources with knowledge of the matter said. Tencent aims to start the sale this year if market conditions are favourable, two of the sources said.
Tencent, which owns China’s No-1 messaging app WeChat, first invested in Meituan’s rival Dianping in 2014, which then merged with Meituan a year later to form the current company. Meituan’s shares closed down more than 9% on Tuesday in Hong Kong.
The planned sale comes against the backdrop of a sweeping regulatory crackdown in China since late 2020 on technology heavyweights that took aim at their empire building via stake acquisitions and domestic concentration of market power.
The regulatory crackdown came after years of a laissez-faire approach that drove growth and dealmaking at breakneck speed.
Tencent has been reducing holdings partly to appease the Chinese regulators and partly to book hefty profits on those bets, said three of the sources.
The value of the group’s shareholdings in listed companies excluding its subsidiaries dropped to just $89 billion as of end-March from $201 billion in the same period last year, according to its quarterly reports.
“The regulators are apparently not happy that tech giants like Tencent have invested in and even become a big backer of various tech firms that run businesses closely related to people’s livelihoods in the country,” one of the sources said.
Tencent declined to comment. Meituan did not respond to a request for comment. And all the sources declined to be named due to confidentiality constraints.
Stakes in JD.com, SEA Also Sold
Tencent announced in December the divestment of around 86% of its stake in JD.com, worth $16.4 billion, weakening its ties to China’s second-biggest e-commerce firm.
One month later, it raised $3 billion by selling a 2.6% stake in Singapore-based gaming and e-commerce company SEA Ltd, which was seen as a move to monetise its investment while adjusting business strategy.
Tencent has not pinned the sale of JD.com and SEA stakes on the regulatory crackdown.
The potential sale of the Meituan holding will likely be executed via a block trade in the public market which typically takes a day or two from marketing to completion, according to two of the sources.
It would be a fast and smooth way for Tencent to offload the shares, they added, compared to transferring them as dividends or negotiating with a private buyer.
Tencent Music Revenue Beats Estimate
Meanwhile, Tencent Music Entertainment Group bettered quarterly revenue estimates on Monday as a slate of original content helped its music streaming platform attract more paying users.
The company’s US shares rose 5.9% in extended trading after it said users who paid for online music jumped by a quarter to 82.7 million yuan. Music subscription revenue of the platform that operates like Spotify rose 18%.
Tencent Music also benefited from a push for original content, including a partnership with parent Tencent Holdings to produce songs from popular game titles.
Its total revenue was 6.91 billion yuan ($1.02 billion) in the second quarter ended June 30, compared with the 6.62 billion yuan expected by analysts, according to Refinitiv IBES data.
But Tencent Music’s overall revenue, however, fell 13.8% from the same quarter of last year, showing that stiff competition and an economic slowdown sparked by Beijing’s zero-Covid policy were weighing on the music business.
Revenue also fell 20% in the social entertainment business – the company’s biggest revenue driver and home to its karaoke app WeSing and live concert platform Kuwo Music.
Tencent Music has been in the crosshairs of regulators and was forced last year to end its exclusive contracts with big music labels, eroding its advantage against rivals such as Cloud Music and Bytedance-owned short-video sharing platform Douyin.
- Reuters with additional editing by Jim Pollard