Reuters broke the news that Tencent was planning to sell its 17% stake in Meituan, worth US$24 billion.
This sent the share price of Chinese tech stocks down yesterday, especially the investee companies of Tencent.
But alternative reports denied that it is not true. One of them quoted Zhang Jun, the general manager of public relations at Tencent, said that it was falsehood.
Tencent and Meituan refused to make a comment officially.
So which is true?
I think it is likelier that the sale is true.
First, why Tencent didn’t come forth and clarify that the sale isn’t true? As the saying goes, ‘silence means consent’. Leaving it grey gives Tencent space to manoeuvre.
Second, Tencent distributed its stake in JD via a dividend-in-specie to its shareholders and pared some stake in Sea previously.
Most investors see the move to placate the government as Tencent was an octopus with a tentacle in almost every important business in China. That’s too powerful. Shedding its portfolio reduces its influence and grip.
But that was not the reason Tencent provided. It said that JD was an investee company that was matured enough to stand on its own so it was time to divest.
That’s weird. There are investee companies in Tencent’s portfolio that are more matured than JD and they didn’t sell. Examples are Tesla, Universal Music Group, and CICC (an investment bank in China).
The Chinese has a high-context culture – it often gives you the ‘neither confirm nor deny’ response. We have to read in between the lines.
The sale may not be a bad thing. I was not able to track the total amount in which Tencent invested in Meituan. I am doing an estimation. I got the total funding amount for Meituan from Crunchbase, which was about $17.3B. Tencent’s 17% stake would be an estimated investment of about $2.9B.
Selling at $24B means a whopping $21.1B profit or a 7x return!
