Before China’s Big Tech crackdown, “giant” Tencent quietly found a way to “dodge bullets”.
- Tram Ho
Nearly five years ago, Pony Ma, the director of Tencent, once proudly assured leaders in the Chinese business sector that his company was becoming an important part of the country “on par with the company.” provide water and energy, as an essential infrastructure.”
WeChat, Tencent’s versatile messaging app with more than 1 billion users, has catapulted the group to the status of a major investor with a portfolio worth 1.2 trillion yuan (equivalent to 190 billion yuan). dollars), funding a strong team of tech startups. The company also has more than $10 billion in investments in private companies, according to a Financial Times source.
However, the Chinese government’s strategy to control Tencent rivals such as Alibaba and Meituan has caused the company itself to rethink its ambition to reach out its “octopus” to dominate the technology market. in the country, an insider of the Financial Times said.
With the government eyeing the influence of private companies on China’s economy and society, Ma seems to be pursuing more “secret” forms of investment at home, in while focusing on expanding into the international market.
In a recent year-end party of Tencent, the director shared: “We are not an essential service at all” and reminded the company internally to work with the mentality “like a company”. normal”, acting as a “good assistant” but also “easily replaced”.
Over the past year, China’s antitrust authorities have had numerous discussions with Ma, as well as penalizing Tencent for more than 30 previous investments, voiding a merger of the company, and recommending that the company open its doors. gradually the ecosystem out for competitors can more easily compete.
In addition to its investments, which are increasingly scrutinized with the new law, the company also had to withdraw $ 16 billion from China’s leading e-commerce company JD.com. In addition, the company also said that it may sell shares in its subsidiaries when these businesses grow.
“In the near term, we expect Tencent to invest less in platform companies to avoid creating the illusion of creating cliques through accounts,” said Bo Pei, of US Tiger Securities. investment, a move that doesn’t sit well with China’s antitrust focus.”
Data shows that Tencent’s investments in 2021 have grown to a record 270 from 174 years ago, but there are indications that total investment fees indicate have begun to slow. In the fourth quarter, the company’s investment in the Chinese market was only a quarter of what it was in the first quarter, according to data from research group ITjuzi.
According to a source familiar with Tencent’s investment strategy, “As the portfolio grows, the natural tendency is for the rate of return to decrease… So instead of being a sole builder With a growing portfolio and declining profits, Tencent would rather give back some value to shareholders.”
Part of the explanation for this drop in momentum is a desire to stay as far away from the attention of the authorities as possible. Several venture capitalists told the Financial Times that Tencent recently asked startups it just invested in to remove the company’s name from press releases. These startups include product design company Lanhu and software provider XSKY.
Charlie Chai, an analyst from 86 Research, said that despite the divestment from JD.Com, Tencent is still in the sights of the authorities. He pointed to Tencent’s investment in companies such as delivery app Meituan, e-commerce giant Pinduoduo and online brokerage Futu as groups of companies that are “”physically similar to JD”. He added: “In the eyes of regulators, these companies all share the same traffic flow and are trying to dominate the market by sharing users. It is very difficult for an emerging company to jump into this market.”
There has also been sensitivity on the part of Tencent to Beijing’s demands after regulators recently blocked the company’s plans to merge the two video game streaming platforms and fined Tencent and its rivals. 16 million yuan for failing to declare more than 30 investments in the past. Late last year, Tencent received four fines for four deals in which the company held only 10% of the startup’s shares.
The punishment comes after November 2020, when Chinese authorities removed legal loopholes that allowed big internet companies to spend years of their investments without having to report them to antitrust authorities. Tencent will now have to go through China’s strict merger process every time it puts money into startups in exchange for even minimal ownership.
The new rules also mean that Tencent itself will have to reduce its influence in new investment startups to avoid trouble, according to two Financial Times sources.
“It doesn’t matter how big the investment is,” said Scott Yu, a lawyer who advises tech giants to comply with antitrust laws. As a rule, if your company can influence the strategic business decisions of the target business, you already have control over them.”
“In the past, tech businesses could even claim a seat on the board [of the investee company] as well as the right to rule on key issues like investment strategy and annual budgets, or appoint new leaders, but now things are different.”
Yu said the target startup must also have an annual revenue of 400 million yuan to be eligible. Data from ITjuzi shows that Tencent has increased its share of early-stage investments in the last year.
In its official statement, Tencent denied that the investment strategy has changed: “It is just that Tencent has recently reviewed its investment portfolio and considered diverse options that are beneficial to the company and investors,” the company said.
Along with wriggling through the dense regulatory environment at home, Tencent also expanded abroad with more than 44 successful deals in the past year compared to 17 deals last year. Investments span areas such as gaming, e-commerce, health and financial technology.
Tencent is aggressively hiring at its Singapore branch that has steered the Southeast Asian tech wave. Tencent’s largest shareholder, Prosus, took out $5.25 billion in debt last week for purposes “including acquisitions and investments.” Over the past few weeks, Tencent has increased its stake in Finnish mobile game company Supercell and invested in Monzo, a British online banking app.
Mr. Wong Kok Hoi, chief investment officer at APS Asset Management, said: “Regulators have made it clear that they don’t want to see anticompetitive behavior [from the big tech side]…like a takeover. each game company…Now they have no choice but to go international.”
But the Chinese corporate identity could hinder Tencent’s outward campaign. In recent years, India has gradually banned the company’s applications, from WeChat, to the hit mobile game Free Fire.
This year Tencent immediately announced the sale of a small amount of its shares and voting rights in Sea, the Singaporean technology company behind Shopee, after Tencent’s role in Sea caused the company to face many controversies. in India.
Recently, Sea’s e-commerce platform Shopee also had to close after being accused of being a subsidiary of a Chinese technology company from a trade alliance with national colors of small businesses in this country. with lawyer Prashant Umrao, close to the right-wing Bharatiya Janata party. Tencent plans to reduce voting rights in Sea from 23% to less than 10% and cancel an agreement that the leaders of the two companies have just signed.
Regardless of which company is next targeted by Beijing’s crackdown, Tencent’s investments are no longer a private matter. Financial Times sources said, now all investment decisions of Tencent must first consider both public opinion and the impact of the law.
“The market regulator knows each and every number of investments of each ‘giant. An official showed me the data of each company one by one. They’re watching it very closely,” a Chinese venture capitalist told the Financial Times.
Source : Genk