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:
- 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;
- 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;
- 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;
- 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;
- However, while it will probably work with most countries (including the US), whether Indian regulators will see it this way is a question mark;
- Either way, the business relationship between Tencent and Sea will continue, and Tencent still retains most its financial benefits (equity holding) in Sea Group;
- 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.