Alibaba & Tencent: Should stock sales by partners worry us?

March 26, 2019 17:04
Alibaba has seen some strategic partners trim their stakes in the company, but that doesn't mean the e-commerce giant has lost its investment allure. Photo: Reuters

Alibaba's long-time strategic partner Foxconn said last week that it had sold 2.2 million shares of the e-commerce giant in a block trade worth nearly US$400 million. Following the sale, the Taiwan group currently holds 2.6 million Alibaba shares.

Suning.Com (002024.SZ), another Alibaba ally, announced in December last year about a disposal of US$4.25 billion worth of Alibaba shares.

In a strategic alliance move, Sunning paid US$2.45 billion to acquire 1.04 percent stake in Alibaba. A subsequent surge in Alibaba’s share price helped Sunning book a profit of over 140 percent on the sale.

In other transactions, Alibaba Group founder and executive chairman Jack Ma and executive vice chairman Joseph C. Tsai said on March 15 that they would sell a total of 30.6 million shares in the next 12 months “for ordinary wealth planning purposes and to meet philanthropic commitments”.

In 2014, the two founders pledged to donate 2 percent shares for charity during Alibaba’s IPO in the US. The shares being offloaded by Ma and Tsai are worth US$5.4 billion at Friday’s closing price. After the disposal, Ma and Tsai will still hold 6 percent and 2 percent of Alibaba respectively.

Meanwhile, Alibaba’s arch rival Tencent is also facing some selling pressure from its long term major shareholder.

Naspers, Africa's most valuable company, plans to list its 31 percent stake in Tencent, along with other non-South African internet assets, in Amsterdam. Naspers will own 75 percent of the new company, and float the remaining 25 percent.

The listing is aimed at better reflecting the value of Tencent shares, and reduce Naspers’ valuation discount, according to its CEO Bob Van Dijk.

Selling by partners and insiders is often seen as a negative sign, but such conventional thinking may not be correct.

In the cases above, some sellers have specific reason for selling while others may just want to lock in large profit.

In particular, early-stage investors have all reaped huge profit given that the market values of both Alibaba and Tencent have topped US$400 billion. These investors have strong incentive to lock in profits.

In some cases, we have even seen founders offloading shares at low prices. For example, Tencent’s Pony Ma began reducing his holdings, via block trades, since 2008 “to improve his personal life”. He has sold shares at a low of HK$67 per unit. Since then, Tencent has seen its stock price spike several fold.

This article appeared in the Hong Kong Economic Journal on March 26

Translation by Julie Zhu

[Chinese version 中文版]

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Hong Kong Economic Journal columnist