* Tencent to buy 680.3 mln new China South City shares
* Stake represents around 9.9 pct of enlarged share capital
* Agrees to buy China South City shares at HK$2.20/shr
* Also has option to up stake to about 13 pct within 2 yrs
* Entitled to propose candidate for China South City board (Adds company comment, detail on investment, background)
By Paul Carsten
BEIJING, Jan 15 Tencent Holdings Ltd, China's biggest listed tech company, is to invest HK$1.5 billion ($193.5 million) in logistics and warehouse firm China South City Holdings Ltd to help develop its e-commerce and logistics business.
Tencent said on Wednesday it had agreed to buy 680.3 million new shares in China South City, representing around 9.9 percent of the latter's enlarged share capital.
Tencent, which has a stock market value of $118 billion, is known for its social networks and video games, including the popular WeChat mobile messaging app, known locally as "Weixin".
The investment in China South City pits it against Alibaba Group Holding Ltd, the e-commerce group founded by former English teacher Jack Ma, whose expected stock market flotation is set to value it at more than $100 billion.
The rivalry between the two companies has ramped up in recent months, with Alibaba pushing its own mobile messaging app and setting up its own mobile gaming platform. Alibaba's Taobao and Tmall websites, roughly akin to eBay Inc and Amazon.com Inc, control roughly 80 percent of China's e-commerce sector.
"Chinese small-to-medium sized enterprises have huge demand to expand their businesses online," said Tencent President Martin Lau. "Cooperation with China South City enables us to jointly facilitate such enterprises migrating online."
Alibaba's online payment associate AliPay also dominates the online payment market in China, and has differentiated it from Tencent's Tenpay by allowing users to invest money placed into Alipay in a money-market fund to accrue interest.
Tencent will focus on e-commerce with small and medium enterprises and develop online stores for branded goods, much like Alibaba's Tmall. China South City will provide warehousing and logistics as the backbone for the e-commerce business.
In December Alibaba said it would invest HK$2.82 billion ($363.7 million) in appliance maker Haier Electronics Group Ltd in a deal aimed at expanding its logistics reach to the millions of consumers in China's vast interior.
China South City also agreed to grant Tencent an option to further subscribe to new shares of the company within a two year period to raise its stake to about 13 percent. Tencent will in addition be entitled to propose a candidate for China South City's board.
Tencent agreed to buy the China South City shares at HK$2.20 apiece. Trading in China South City was suspended on Tuesday pending the announcement. (Editing by Miral Fahmy and David Holmes)