Tencent to hand out $22b of shares in JD.com as dividend

HONG KONG • Tencent Holdings plans to distribute more than US$16 billion (S$22 billion) of JD.com shares to its investors as a one-time dividend, representing a near retreat from the Chinese e-commerce firm that has been one of Tencent's most successful investments.

It plans to give out 457.3 million Class A shares in JD.com, representing about 86.4 per cent of its total stake and nearly 15 per cent of the online retailer's total issued shares, according to a filing to the Hong Kong stock exchange. At Wednesday's close, the shares in the proposed distribution were worth HK$127.7 billion (S$22.3 billion).

Tencent, which controls about 17 per cent of JD.com, will hold roughly 2.3 per cent of the e-commerce company's shares after the handout, JD.com said in a separate statement.

The special dividend would rank among the largest shareholder giveaways ever by a Chinese technology company that has long relied on rapid growth and investment to satisfy investors.

"The dividend payout plan is rare," said Mr Gary Ching, vice-president of research at Guosen Securities (HK). "It is a way for Tencent to sell JD shares, which will reduce the selling pressure for JD, but it's obviously bad news for both companies at this time."

The core of the country's current anti-monopoly crackdown is to scale back the giants' involvement in various industries, Mr Ching added. Other companies such as Alibaba may also have to withdraw their previous investments in some successful start-up companies, he said.

Tencent's strategy is to invest in companies during their development stage and to exit the investments as they become capable of financing future initiatives on their own, the Internet giant said.

"The board believes that JD.com has now reached such a status, and the board therefore considers that it is an appropriate time to transfer..." the majority of the shares to its investors, the company said.

The proposed dividend comes after Chinese tech shares were battered by over a year of intense regulatory scrutiny spanning areas such as antitrust, after-school education, gaming and online content.

Growth at Internet firms like Tencent, Meituan and Alibaba Group Holding has slowed, forcing them to invest in new earnings drivers.

President Xi Jinping's call to achieve "common prosperity" and level income inequality has also prompted the companies and the moguls behind them to make public pledges to philanthropic efforts.

Tencent has already announced that it is setting aside US$15.7 billion for social responsibility programmes. Tencent president Martin Lau will resign as director of JD.com as of yesterday. The two firms will continue their "mutually beneficial business relationship, including via their ongoing strategic partnership", Tencent said.

Having Tencent as its major shareholder gave JD.com access to the Internet giant's vast ecosystem, including the popular WeChat app which Chinese consumers use for messaging, paying bills and making purchases.

Competitors have complained that links to their services have been blocked, though this is slowly changing under Beijing's pledge to drive out anti-competitive behaviour in the Internet arena.

BLOOMBERG