Tencent to cut stake in Singapore tech group Sea

Chinese gaming and social media company Tencent Holdings Ltd said on Tuesday it would cut its stake in Singapore-based gaming and e-commerce firm Sea Ltd, reducing its voting power to under 10%.

According to a term sheet reviewed by Reuters, Tencent is selling at a price range of $208.00-$212.00 per share, bringing the total divestment to up to $3.1 billion. Sea‘s last close price was $223.31 per share. The trade has not been priced, according to a person with direct knowledge.

Tencent will divest about 14.5 million shares, reducing its stake to 18.7% from 21.3%. The company said it intends to retain the substantial majority of its stake in Sea for the long term.

“The share sale unlocks a portion of the value of Tencent’s investment in Sea, which has seen significant growth and expansion in its global business operations. The divestment provides Tencent with resources to fund other investments and social initiatives,” the company said in a statement.

Tencent will be subject to a lockup period that restricts further sale of Sea shares by Tencent during the next six months.

Goldman Sachs, Morgan Stanley and Bank of America advised on the trade, according to the term sheet. Goldman Sachs and Morgan Stanley declined to comment while Bank Of America was not available for comment.

Sea’s U.S.-listed shares slumped about 8% to $205.5 in early trading and Tencent’s shares closed 0.8% lower at HK$450.

Tencent’s move comes just days after the company said it would divest $16.4 billion of its stake in JD.com, weakening its ties to the e-commerce firm, amid pressure from Beijing’s broad regulatory crackdown on technology firms.

Sea said Tencent and its affiliates had given an irrevocable notice to convert all their Class B ordinary shares.

Upon conversion, all outstanding class B shares of Sea will be beneficially owned by Forrest Li, the founder, chairman and CEO of Sea, whose market value of $124 billion makes it Southeast Asia’s most valued company.

Tencent has also agreed to terminate its proxy to Li after the conversion.

Sea is proposing to increase the voting power of each Class B ordinary share to 15 votes from three.

“The board believes that, as Sea has scaled significantly to become a leading global consumer internet company, it is in the best interests of the company in pursuing its long-term growth strategies to further clarify its capital structure through the contemplated changes,” it said.

Sea said the changes are subject to approval by its shareholders at its annual general meeting set for Feb. 14.

It said that once the changes are made, the outstanding Class B ordinary shares beneficially owned by Li are expected to represent about 57% of the voting power, up from about 52%.

Separately, Li holds about 54% of the total voting power related to the size and composition of Sea’s board of directors.

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