Tencent, Sea Group’s largest shareholder, yesterday announced it was divesting about 14.5 million shares it owned, cutting its shareholding from 21.3%-18.7%. The market seemed to have reacted violently, sending Sea’s share price down by more than 11% in yesterday’s trading session.

Many friends have asked us what is our take on the sale – is it part of China’s continued crackdown on big tech (remember Tencent also relinquished almost all its JD shares recently)?

Here are some of our thoughts:

  1. This is probably more of a request from Sea Group, rather than an initiative from Tencent; Sea is not a Chinese company and there is no reason for the Chinese government to play a hand in this;
  2. However, outside China there are rumours about Sea Group being a proxy of Tencent, especially in India, a market Shopee is keen to explore further;
  3. Tencent trimming shareholding and relinquishing voting power could very likely be a signal to regulators and the public that Sea Group is not its proxy in anyway;
  4. This in effect reduces Sea Group’s regulatory risks in the countries it operates in, especially under current geopolitical landscape and the US-China (de facto) cold war;
  5. However, while it will probably work with most countries (including the US), whether Indian regulators will see it this way is a question mark;
  6. Either way, the business relationship between Tencent and Sea will continue, and Tencent still retains most its financial benefits (equity holding) in Sea Group;
  7. It is probably more important to see whether Shopee and Garena can sustain their growth and narrow losses in key markets when people are now able to resume activities offline.

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Thanks for reading The Low Down (TLD), the blog by the team at Momentum Works. Got a different perspective or have a burning opinion to share? Let us know at [email protected].

 

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Jianggan Li
Jianggan Li is the Founder & CEO of Momentum Works. Prior to founding Momentum Works, he co-founded Easy Taxi in Asia, and served as Managing Director of Foodpanda. The two years running Rocket Internet companies has given him a lifetime experience on supersonic implementation, and good camaraderie with entrepreneurs across the developing world. He holds a MBA from INSEAD (GMAT 770) and a degree in Computer Engineering from Nanyang Technological University. Unfortunately he never wrote a single line of code professionally - but in his first job he was in media, travelling extensively across Asia & Europe, speaking with Ministers & (occasionally) Prime Ministers. Apart from English and his native Mandarin, he is also fluent in French and conversational in Cantonese & Spanish. He tried to learn Latin (for three years) and Sanskrit (for six months) as well. In his (scarce) free time, he reads, travels, hikes and dives. Pyongyang, Tehran & Chisinau are among the interesting cities he has been to.