Chinese gaming and social media firm Tencent will hand a $16.4 billion (roughly Rs. 1,23,570 crore) JD.com stake as a dividend to its shareholders, weakening its ties to the e-commerce agency, and elevating questions on its plans for different holdings.

Tencent stated on Thursday it’s going to distribute HKD 127.69 billion (roughly Rs. 1,23,370 crore) price of its JD.com stake to shareholders, slashing its holding in China’s second-biggest e-commerce firm to 2.3 % from round 17 % now and dropping its spot as JD.com’s largest shareholder to Walmart.

The divestment transfer comes as Beijing leads a broad regulatory crackdown on know-how companies, taking goal at their abroad development ambitions and focus of market energy in China.

Tencent, which first invested in JD.com in 2014, stated it was the best time to switch its stake given the e-commerce agency has reached a stage the place it could actually self-finance its development.

“This seems to be a continuation of the concept of bringing down the walled gardens and increasing competition among the tech giants by weakening partnerships, exclusivity and other arrangements which weaken competitive pressures,” stated Mio Kato, a LightStream Research analyst who publishes on Smartkarma.

“It could have implications for things like the payments market where Tencent’s relationships with Pinduoduo and JD have helped it maintain some competitiveness with Alipay in our view,” he stated.

JD.com shares plunged 11.2 % in early commerce in Hong Kong on Thursday, the most important day by day share decline since its debut within the metropolis in June 2020, whereas Tencent shares rose 5.7 %.

The corporations stated they might proceed to have a enterprise relationship, together with an ongoing strategic partnership settlement, although Tencent Executive Director and President Martin Lau will step down from JD.com’s board instantly.

Eligible Tencent shareholders will probably be entitled to at least one share of JD.com for each 21 shares they maintain.

Tencent, the proprietor of WeChat, selected to distribute the shares as a dividend fairly than promote them in the marketplace in an try to keep away from a steep fall in JD.com’s share worth in addition to a excessive tax invoice, an individual with data of the matter advised Reuters.

“For JD, the impact is definitely negative,” stated Kenny Ng, an analyst at Everbright Sun Hung Kai.

“Although Tencent’s reduction of JD’s holdings may not have much impact on JD’s actual business, when the shares are transferred from Tencent to Tencent’s shareholders, the chances of Tencent’s shareholders selling JD’s shares as dividends will increase.”

Investors and analysts stated the distribution of the JD.com stake raised the prospect that Tencent’s investments in e-commerce firm Pinduoduo and meals supply large Meituan is also divested amid regulatory strain to scale down.

Tencent has no plans to exit these investments as a result of they don’t seem to be as well-developed, the particular person with data of the matter stated.

Payments processor Alipay is a part of Tencent rival Alibaba Group.

© Thomson Reuters 2020