(Bloomberg) -- Tencent Holdings Ltd. tumbled by the most in over two months on signs that its largest shareholder Prosus NV may extend the selling of the Chinese tech firm’s stock.
Most Read from Bloomberg
The internet company’s shares dropped 5.2% to HK$357.2 in Hong Kong, the most since late January, after news that Prosus planned to deposit an additional 96 million of shares into the city’s stock clearing system, typically a precursor to selling. Prosus shares fell as much as 5.5% in Amsterdam while parent Naspers declined as much as 3.6% in Johannesburg.
Tencent’s internet peers that trade in the US saw shares falling in premarket trading, with Alibaba Group Holding Ltd. and JD.com Inc. both down by more than 1.5%. The exchange-traded KraneShares CSI China Internet Fund dropped 1.6%.
“It’s likely that Prosus will speed up their selling of Tencent shares when it’s near the level of HK$400,” said Steven Leung, an executive director at UOB Kay Hian. “Tencent has been buying back their shares to offset the market impact of big holders selling every day, but still, such negative news would always cause some concern.”
Prosus, an early investor in Tencent through its Cape Town-based parent Naspers Ltd., first started its campaign to pare back holdings in mid-2022 as a way to fund its own share buyback. The stock sales are an open-ended process and chief executive Bob van Dijk has said that those trades will be executed in small chunks of between 3% to 5% of daily volumes.
As of January this year, Prosus said it sold more than 193 million Tencent shares for a net proceed of $7.2 billion, cutting its position to about 26.9% from 29% in June 2022. Prosus’ selling and its buyback could help bridge the gap between its market value and the value of assets that it holds, analysts have said.
“We continue with our open-ended share repurchase program of Prosus and Naspers shares as per our previously announced strategy,” a Prosus spokesperson said by email.
What Bloomberg Intelligence Says:
Prosus looks set to continue its gradual Tencent selldown, funding a share buyback. On top of some business simplification this has greatly reduced the holding-company discount and may remove it consistently in time. More dramatic action is possible — perhaps via a carve-out of one or more divisions — though this may be a year or more away.
—John Davies, BI Senior Industry Analyst
Meanwhile, Tencent has also tried to buy back some of its shares as a way to mitigate the slump. In its current round of buybacks that started on March 27, Tencent has purchased a combined 8.3 million shares. Still, the buybacks have done little to stem further share price declines given broader jitters about a regulatory crackdown and Covid’s impact on the economy.
Though shares have slipped this week, they are still some 87% higher from an October low following China’s reopening measures. Tencent’s plans to develop a ChatGPT-like bot and a resumption of new game approvals are helping support some gains.
“Tencent’s share price always takes a hit when there’s news of Prosus selling,” said Vey-Sern Ling, managing director at Union Bancaire Privee. “But the sale doesn’t affect the fundamentals of Tencent.”
Prosus has a regulatory requirement to disclose its interest in Tencent every time it goes down a percent. The investment firm did that in December last year, when its holding dropped just below 27%. The company has reduced its holding from 29% since starting the program in June 2022.
--With assistance from John Cheng, Loni Prinsloo, Kit Rees and Henry Ren.
(Updates with Bloomberg Intelligence in 8th paragraph)
Most Read from Bloomberg Businessweek
©2023 Bloomberg L.P.