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Tencent, a Chinese tech holding company, is chopping its stake in JD.com, the second-largest e-commerce firm in the country. The move is reportedly an effort to get on the good side of the local government that has recently been turning on the heat against tech giants.
According to CNN Business, Tencent is planning to give away more than $16 billion worth of JD.com stake it owns and distribute them to the company's shareholders as a one-time dividend. The tech firm revealed this plan on Thursday, Dec. 23, via stock exchange filing.
The $16 billion worth of stake to be handed out to shareholders is equivalent to 457 million shares that represent 86.4% of its stake at JD.com. At the present time, Tencent controls 17% of the Chinese e-commerce giant and once the shares are distributed, the company's stake will effectively go down to just 2.3%.
With the huge reduction, Tencent will lose its position of being JD.com's largest shareholder. Richard Liu Qiandong, JD.com's founder will now be the biggest stakeholder with his 13.9% shares. Walmart will become no. 2 with the 9.3% stake it owns.
The sudden withdrawal of Tencent from JD.com comes at a time when major tech companies in the country are being scrutinized by the government. In recent months, many have made dramatic changes in their system to abide by the local policies or risk being shunned and losing big money through massive fines and other means.
In the filing, Tencent stated JD.com has reached the level where it can already finance its own growth and development. Thus, the company believes this is the right time to move the majority of its stake to shareholders.
Furthermore, CNBC reported that it is part of Tencent's strategy to invest in companies early on to support growth then leave once they become capable of steadily financing their own future initiatives. Still, despite the decision to give away stakes, it was shared that Tencent and JC.com will continue to maintain their mutually beneficial business relationship.
Tencent's stock soared over four percent in Hong Kong after the filing, while the e-commerce company's shares plunged seven percent.
