Tencent denies report it plans to divest portfolio to fund share buy-backs amid weak share price

Chinese tech giant Tencent Holdings, whose shares have fallen to their lowest level since 2018, has denied a media report that it plans to sell some of its investment portfolio to fund its own share buy-backs.

The Wall Street Journal reported on Tuesday that Tencent has reviewed its portfolio and identified possible targets for stake sales, including food delivery firm Meituan, real estate brokerage KE Holdings and ride-hailing platform Didi Global, aiming to free up cash and fund share buy-backs.

A Tencent spokesman said on Wednesday that the company did not have to sell any of its portfolio to fund share buy-backs, which can be done using current cash flow.

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The WSJ report echoed a similar Financial Times report earlier this month that said Tencent plans to divest about 100 billion yuan (US$14.5 billion) of its listed equity portfolio in 2022. Tencent denied the FT report. Reuters also reported last month that Tencent planned to sell all or part of its 17 per cent stake in Meituan, which Tencent’s chief strategy officer James Mitchell called “not accurate”.

Tencent, China’s most valuable technology firm known for “owning half of the mountains and rivers” because of its extensive investment portfolio, reiterated that it has no plan and does not need to sell off assets to bankroll its share buy-backs.

In a statement issued Wednesday, a Tencent spokesman said: “We don’t have any target amounts for divestments. We have always invested with the goal of generating strong returns for our company and shareholders, not according to any arbitrary timeline or target.”

But there are growing signs that Tencent has entered a period of consolidation and divestment. The company’s payroll shrank for the first time since its listing, with 5,500 fewer employees reported in the second quarter.

In the first half of this year, Tencent made 32 investments and acquisitions compared with 129 in the same period in 2021.

Tencent’s sprawling investment portfolio of 800 companies at home and abroad covers video gaming, social media, finance, e-commerce and entertainment. However, the expansive nature of the portfolio has also drawn regulatory scrutiny amid Beijing’s crackdown on “irrational capital expansion” in the tech sector.

Under the government crackdown, Chinese antitrust regulator the State Administration for Market Regulation slapped multiple fines on Tencent and other major tech companies for failing to report past mergers and acquisitions for review.

Since late last year, Tencent has slowed its investment pace and downsized its portfolio, trimming its shares in JD.com, Singapore-based e-commerce firm Sea Limited and online education firm Koolearn Technology, among other divestment moves.

Tencent offloaded US$16 billion worth of shares in JD.com, China’s second largest e-commerce platform, by distributing the stock as a special dividend to investors. It also raised US$3 billion by selling 14.5 million American depositary shares in Sea.

China’s top leadership, however, recently pledged to be less restrictive when it comes to the business activities of Big Tech firms after imposing tightened scrutiny since late 2020. A Politburo meeting chaired by President Xi Jinping in late July concluded that more investment deals in the tech sector should be given the green light, as part of efforts to prop up the country’s slowing economy.

Tencent has subsequently picked up the pace, with a 291 million yuan investment in a subsidiary of Jiangsu Yuyue Medical Equipment & Supply Co, the investee company announced on Monday.