Asia-Pacific Shares Plunge After Tencent Announces Meituan Stake Cut

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Shares in Asia Pacific fell after world-leading Internet and technology company Tencent announced on Wednesday that it would cut its stake in Meituan, a food delivery platform.

Shortly after the announcement, the Hang Seng index fell 2.09%, showing that Chinese technology stocks had posted heavy losses.

Mainland China’s Shanghai Composite also fell 0.52%, while the Shenzhen component slumped 0.69%.

In South Korea, the Kospi fell 1.14% to close at 2,448.06 following a delayed opening.

Japan’s Nikkei 225 also lost 0.35%, closing at 27,930.57 as Japan reports a trade deficit of $15 billion above Reuters predictions.

According to the survey issued last week, October’s core consumer inflation rate could hit a 40-year high as businesses have been forced to pay more for commodities as the yen weakens.

Tencent’s move came as Beijing stepped up its efforts to rein in tech giants’ dominance in the market.

In a filing with the Hong Kong Stock Exchange, Tencent said it would distribute most of its $20.3 billion valued stake in Meituan to shareholders as a dividend.

According to the technology company, which owns a 17% stake in Meituan, the divestment would be completed in March. By then, every investor with 10 Tencent shares would receive one share in Meituan.

Under these plans, Tencent’s share in the delivery app will be less than 2% after distribution.

In addition, Tencent chairman Martin Lau resigned as a non-executive director of Meituan after serving on the food delivery company’s board for more than five years.

Mr. Lau, who also serves as chief executive at Tencent, said the company had looked at the shareholder base, noting that there is a “very big overlap” of major institutional shareholders between them and Meituam.

Since Tencent has made a large financial gain by investing in Meituan, the company plans to let its shareholders decide what to do with the shares, he added.

The tech company has played a minor but direct role in retail. However, by backing JD.com and Pinduoduo, Tencent chipped away at Alibaba’s overwhelming e-commerce market share over the past few years.

In December, the company took similar action, distributing shares as dividends to shareholders to trim its stake in online retailer JD.com.

According to Tencent’s chief strategy officer James Mitchell, the company considers the financial strength of the business in which it invests, its return on investment, and its positioning in the industry.

Mr. Mitchell insisted that Meituan was a clear leader in the food delivery industry and had helped the company earn good returns.

However, Tencent has struggled on the sales front. During the third quarter of the year, its revenue fell 2% after experiencing another drop in the previous period.

Reports showed its revenue came in at just 140.09 billion yuan ($19.8 billion) below the 148 billion yuan analysts had forecast.

Tencent’s sales have slowed sharply due to China’s intensified regulatory crackdown on tech groups that targeted the company’s sprawling empires.

In addition, the company saw a 5% drop to 21.5 billion yuan in online advertising revenue and a 26% drop to 2.6 billion yuan in media advertising revenue.

Since the uncertainties surrounding tech companies in China worsened in 2020, Tencent has closed some unprofitable deals, adopted divestment plans, and laid off staff to maintain growth.

While the company received approval to launch new paid games for the first time since Beijing froze its licenses in mid-2021, analysts have been skeptical that it could boost its revenue.

Tencent’s decision to reduce holdings in portfolio companies is aimed at appeasing Chinese regulators but also allows the company to turn a profit to stay afloat.

Meanwhile, the region’s economic leaders are set to travel to Bangkok, Thailand, to join the Asia Pacific Economic Cooperation (APEC) summit.

The representatives of the Asia Pacific countries are expected to discuss economic, commercial, and security issues, with agreements and measures that could have a further impact on the stock market.

In another development, Wall Street’s shares fell after Target announced a disappointing downgrade, sending its shares and those of other industry peers tumbling Wednesday night.

The big-box retailer said its sales had fallen sharply by the end of October, adding that it plans to cut up to $3 billion in total costs through 2025. As a result, its shares fell 50%.