SINGAPORE (REUTERS) - Chinese gaming and social media giant Tencent Holdings has cut its stake in Singapore’s Sea Ltd by selling US$3 billion (S$4.07 billion) in shares.

Tencent said late on Tuesday (Jan 4) it had entered into a deal to reduce its stake in South-east Asia’s most valuable tech company to 18.7 per cent from 21.3 per cent. The company plans to retain the substantial majority of its stake in Sea for the long term.

Sea’s New York-listed depository receipts fell 11.4 per cent to US$197.8 on Tuesday following the divestment news. Tencent sold the shares at US$208 apiece, a discount of 6.9 per cent to the previous close.

The sale comes after Tencent said last month it would divest US$16.4 billion of its stake in JD.com, weakening its ties to China’s second-biggest e-commerce firm, amid pressure from Beijing’s broad regulatory crackdown on technology firms.

Ahead of the announcement, Sea said Tencent had also agreed to cut its voting stake in the company to less than 10 per cent.

“We believe with a lower voting right control, it could reduce any potential conflict if Tencent’s gaming teams plan to publish more games directly in global markets and help reduce any potential geopolitical friction if/when Sea plans to expand more strategically into new markets in more countries,” Citi’s analysts said in a report on Wednesday.

Sea said Tencent and its affiliates had given an irrevocable notice to convert all their Class B ordinary shares.

Upon conversion, all outstanding Class B shares of Sea will be beneficially owned by Mr Forrest Li, the founder, chairman and chief executive of Sea, which has a market capitalisation of US$110 billion.

Tencent and Sea declined to comment on the pricing of the share sale.

Sea’s shares have shed 47 per cent from a record high of US$372 struck in October but have still risen fivefold in the past three years.

The company started out as a gaming firm in 2009 and then diversified into e-commerce and food delivery, benefiting from roaring demand for its services from consumers, especially during pandemic-related restrictions.

Sea is now expanding its e-commerce operations globally.

“The divestment provides Tencent with resources to fund other investments and social initiatives,” Tencent said in a statement.

It sold the stock at the lower end of the US$208 to US$212 per share range when the transaction was launched on Tuesday.

Tencent’s shares fell 3.5 per cent on Wednesday in a broader market, weighed down by tech stocks.

Tencent will be subject to a lock-up period that restricts further sale of Sea shares by Tencent during the next six months.

Separately, Sea is proposing to increase the voting power of each Class B ordinary share to 15 votes from three.

“The board believes that, as Sea has scaled significantly to become a leading global consumer Internet company, it is in the best interests of the company in pursuing its long-term growth strategies to further clarify its capital structure through the contemplated changes,” it said.

Sea said the changes are subject to approval by its shareholders.

It said that once the changes are made, the outstanding Class B ordinary shares beneficially owned by Mr Li are expected to represent about 57 per cent of the voting power, up from about 52 per cent.

Separately, Mr Li holds about 54 per cent of the total voting power related to the size and composition of Sea’s board of directors.