Tencent Holdings Ltd, the Chinese gaming and social media giant, has raised $3 billion by reducing its stake in Sea, the e-commerce platform Shopee’s owner. This move is part of Tencent’s plan to retain the majority of its stake in Sea, but decrease its ownership from 21.3% to 18.7% in the long term.

This latest share sale follows Tencent’s recent decision to divest $16.4 billion worth of its stake in JD.com, another major Chinese e-commerce company. Industry experts see these divestments as a direct response to China’s increased regulatory scrutiny on technology firms.

News of Tencent’s divestment caused a significant drop in Sea’s shares, with a decrease of 11.4% in New York on Tuesday. However, Sea remains optimistic about its future prospects. Tencent’s reduced voting stake in Sea, which is now less than 10%, is viewed positively as it reduces potential conflicts and geopolitical tensions as Sea expands its global footprint.

Following the conversion, Sea’s founder, chairman, and CEO, Forrest Li, will now be the beneficial owner of all outstanding Class B shares. Despite a recent decline from its record high in October, Sea’s shares have experienced substantial growth over the past three years. The company’s foray into e-commerce and food delivery during the pandemic greatly contributed to its success.

Tencent has stated that the proceeds from the divestment will support other investment opportunities and social initiatives. The share sale was carried out at a price of $208 per share, which falls at the lower end of the range. Reflecting a broader market decline in tech stocks, Tencent’s shares also experienced a fall on Wednesday.

As part of the agreement, Tencent will be subjected to a lockup period that restricts further sale of Sea’s shares for the next six months. In the meantime, Sea is proposing changes to increase the voting power of its Class B ordinary shares, from three votes to 15 votes. However, these proposed changes are subject to approval by Sea’s shareholders.

All in all, Tencent’s divestment in Sea signifies its strategic adjustments in response to stricter regulations, while providing resources for future investments. Conversely, Sea remains dedicated to expanding its e-commerce operations on a global scale and pursuing long-term growth strategies.

Useful links:
1. Link to Reuters article on Tencent raising $3 billion by reducing stake in Sea
2. Link to Bloomberg article on Tencent’s stake sale in Sea