Tencent raids its pantry ahead of lean tech times

Drivers of food delivery service Meituan are seen in Shanghai, China June 25, 2018. REUTERS/Aly Song/File Photo

HONG KONG, Aug 16 (Reuters Breakingviews) - Tencent (0700.HK) is preparing for tough times ahead. The Chinese giant plans to offload all or a chunk of its $24 billion stake in food delivery group Meituan (3690.HK), Reuters reported read more , citing sources. Investors should cheer boss Pony Ma's willingness to raid the company's vast investment portfolio.

A selldown follows a similar divestment of JD.com last year. Like the web retailer, Tencent's backing of Meituan was partly to form an alliance against Alibaba (9988.HK), and to boost usage of its e-payments service. The eight-year old investment has proven lucrative: annualised total returns were nearly 20% since Meituan's 2018 Hong Kong debut, versus negative 6% for the Hang Seng Index.

Not much changes for Meituan. The $143 billion company's app dominates the Chinese food delivery market. Nevertheless, a stock overhang — Tencent owns some 17% — sent its shares down 10% on the news.

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For Ma, liquidations help placate regulators worried about technology empires’ overreach. Moreover, Tencent is forecast to post a 27% slide in quarterly earnings tomorrow, per analyst estimates on Refinitiv, thanks to a slowing economy and tightened video-game rules. Padding profits now looks wise. (By Robyn Mak)

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(The author is a Reuters Breakingviews columnist. The opinions expressed are their own.)

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