Singapore-based online gaming company Sea Limited (NYSE:SE) is seeing red today after one Chinese mega-conglomerate offloaded shares. SE stock is down 11.67% this morning on an announcement that Tencent Holdings (OTCMKTS:TCEHY) is selling a 2.6% stake in Sea. Tencent is offering 14.5 million shares valued at a predicted $210 per share to raise an estimated $3.1 billion.
What do you need to know about Sea’s plunge today?
Tencent justified the selloff as an attempt to raise money for other philanthropic investments. The company said,
“The share sale unlocks a portion of the value of Tencent’s investment in Sea, which has seen significant growth and expansion in its global business operations. The divestment provides Tencent with resources to fund other investments and social initiatives.”
However, some may see the selloff as Tencent losing confidence in the e-commerce leader. This is especially true since SE has experienced its fair share of turbulence lately. After hitting a new all-time high of $357.78 in November, Sea has been falling fast. Still in the midst of today’s drop, SE is trading at close to $198 per share at the time of writing.
What else has investors spooked over Sea today?
Tencent Selloff Could Prove a Troubling Sign for SE Stock Investors
In addition to selling its stake, which reduces Tencent’s ownership to 18.7% from 23.1%, Tencent is reducing its voting power in Sea. As part of the deal, Tencent is converting its Class B shares, each of which carries three votes, to Class A non-voting shares.
The move will give Sea founder and CEO Forrest Li ownership of the Class B shares, increasing his voting power from 52% to nearly 60%. Interestingly, the move will also increase the voting rights of each Class B share, of which Li would be the sole owner, to 15 votes per share. Conversely, Tencent’s voting rights would be reduced from 23.3% to less than 10%.
The move is somewhat divisive. While it’s certainly a sign that Tencent is attempting to separate itself from Sea, Sea investors who feel confident in Li’s leadership could approve the consolidation in control.
Sea commented on the change in ownership and voting power transfer, offering fairly standard reasoning.
“As Sea has scaled significantly to become a leading global consumer internet company, it is in the best interests of the company in pursuing its long-term growth strategies to further clarify its capital structure through the contemplated changes.”
Whether the move proves to be fruitful to Sea and its investors remains to be seen. For now, SE is seemingly only seeing the downsides of a foreboding bearish signal.
On the date of publication, Shrey Dua did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
