Cash-rich Tencent aims for China listing, M&A

* Has $877 mln in cash, eyeing acquisitions

* Targets online games, value-added services for M&A

* To launch 3-4 new online games by end-2009

SHENZHEN, China, June 16 (Reuters) - Tencent Holdings 0700.HK, operator of China's largest instant messaging service, aims to list in China after regulators modify current rules, as it seeks to cash in on its big name in its home market.

Hong Kong-listed Tencent, whose popular QQ service is practically synonymous with instant messaging in China, is currently registered as a Cayman Islands business, which prohibits it from listing in China under current regulations even though it is based in the south China boomtown of Shenzhen.

But regulators are expected to change those rules in the near term to encourage overseas-listed, but China-based companies, such as Tencent and peers like Nasdaq-listed NetEase NTES.O, Sohu SOHU.O and Sina SINA.O, to list their shares back home.

“We have always been considering listing in the mainland China market and hope our clients can buy our stock, but this has to depend on the market situation and clearer regulations,” Ma Huateng, a household name among China’s Internet community, told reporters in a group interview at Tencent’s headquarters.

He added that Tencent had a war chest of about 6 billion yuan ($877 million) in cash at end-March, which it could use for acquisitions, rather than distribute to shareholders in the form of more dividends.

“The company is retaining the cash for mergers and acquisitions,” Ma said. “We’ve been doing some small scale acquisitions, with some investing directly and others in cooperation with private equity.”

“We will seek opportunities in China and Asia, with a focus on handset applications and online game development and other technology projects.”

“Competition in China’s online game market is keen, everyone is killing each other,” he added.

Tencent plans to launch three to four new online games by the end of 2009, as it diversifies away from its core instant messaging service into China’s fast-growing online game market.

Shares of Tencent, which joined the blue chip Hang Seng Index .HSI last year, have surged 79 percent this year to HK$89.3 on Monday, making it one of the year's best performers. By comparison, the broader Index is up 29 percent year to date.

Tencent’s stock, which marks its fifth anniversary as a listed company in Hong Kong on Tuesday, has increased 24-fold since its 2004 listing at HK$3.70. ($1=6.838 Yuan) (Writing by Doug Young and Alison Leung; Editing by Ian Geoghegan)