Tencent Weighs Stake Sale in Chinese Delivery Giant Meituan

Tencent

TCEHY -0.33%

Holdings Ltd. is looking to sell most or all of its stake in food-delivery giant

Meituan,

3690 -9.07%

people familiar with the matter said, as Beijing seeks to curb the power and influence of the country’s internet giants.

Tencent has held talks with investment banks to explore ways to dispose of at least a major portion of its roughly 17% stake in Meituan, one of the people said. That stake was worth about $24 billion as of Monday’s market close, before a Reuters report about Tencent’s plan sent Meituan’s Hong Kong-listed shares tumbling on Tuesday.

Shenzhen-headquartered Tencent, a social-media powerhouse that owns the do-everything app WeChat, aims to start reducing its ownership in Meituan when the timing is favorable, the person said. It hasn’t determined whether to sell its shares in one or more large transactions, or via other means, the person said.

Tencent declined to comment. Meituan didn’t respond to a request for comment. Tencent is set to report its April-June quarter results on Wednesday.

Meituan, which went public in Hong Kong in 2018, is one of China’s most valuable tech companies. Its market capitalization hit a high of around $300 billion in early 2021, before a wide-ranging Chinese regulatory crackdown of internet-platform companies sparked a massive stock selloff across the sector.

The company operates an app that hundreds of millions of Chinese citizens use to order meals and groceries, and make travel and restaurant bookings. Tencent has been a large shareholder of Meituan since the latter’s early days, and Meituan has leveraged Tencent’s WeChat ecosystem to expand its user base. Tencent’s president,

Martin Lau,

is a nonexecutive director on Meituan’s board.

Over the past decade, Tencent and rival

Alibaba Group Holding Ltd.

became the country’s two largest, most powerful and valuable technology companies. They expanded their reach and influence by investing in hundreds of Chinese startups and businesses that offered a range of online services. As those smaller companies gained scale and some—like Meituan—became highly successful, the tech giants benefited heavily.

China’s regulatory crackdown on the tech sector has lasted for more than a year and a half, and authorities have so far imposed large fines on Alibaba, Meituan and ride-hailing giant Didi Global Inc. Regulators have also scrutinized many internet companies’ data security and business practices, and demanded reforms. Officials have criticized the sector for what they have called a “disorderly expansion of capital,” and vowed to protect consumers and address monopolistic behaviors.

In recent months, Beijing has signaled an easing of its regulatory campaigns, and China’s top leaders have pledged to support the country’s digital economy.

Tencent has been considering lowering its positions in the internet companies it has invested in, partly to address Chinese regulators’ concerns over its influence, according to people familiar with the matter. The company also wants to hedge its risks from its giant tech investment portfolio after a year in which market valuations of many companies have plummeted, and cash in on its profits from the more successful businesses, they said.

In December 2021, Tencent shed most of its 17% stake in Chinese e-commerce company

JD.com Inc.,

and in January this year it sold $3 billion worth of stock in

Sea Ltd.

, a Singapore e-commerce and videogame company.

Tencent also has sizable investments in Alibaba challenger

Pinduoduo Inc.,

short-video platform operator

Kuaishou Technology

and online books company

China Literature Ltd.

Meituan’s shares slid 9.1% on Tuesday, taking the stock’s year-to-date decline to 27%. Shares of Kuaishou dropped 4.4%, while those of China Literature fell 7.1%.

Tencent’s own shares closed 0.9% higher on Tuesday, but are down 32% in the year to date, according to FactSet.

Chinese tech stocks popular among U.S. investors have tumbled amid the country’s regulatory crackdown on technology firms. WSJ explains some of the new risks investors face when buying shares of companies like Didi or Tencent. Photo Composite: Michelle Inez Simon

Write to Raffaele Huang at [email protected]

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