Prosus, which is one of the largest tech investors in the world, is selling shares of Tencent to fund its own share buyback program. Prosus currently holds a 28.9% stake in the company worth roughly $136 billion. However, Prosus itself is worth less than its stake in Tencent. The buyback program is aimed at boosting Prosus stock and the company’s market value.
TCEHY stock is down about 2% on news. Meanwhile PROSY stock, which is down 21% YTD, is up more than 14% so far today.
What’s Happening with TCEHY Stock?
In a news release, Prosus CFO Basil Sgourdos said the following about the company’s share sale:
“This will efficiently unlock immediate value for shareholders because we’re selling (Tencent) shares at full value and we’re buying back our stock at a considerable discount.”
Tencent says it supports Prosus’ plan. The company also believes the share sale will have a “limited” impact on its own stock price. Prosus plans to undertake a maximum sale of between 3% and 5% of Tencent’s daily trade volume.
Prosus’s plan does come unexpectedly, however. Last year, the tech investment company said that it would not sell any further TCEHY stock after unloading 2% of its holdings, worth $15 billion. In addition to Tencent, Prosus has also sold $3.67 billion worth of shares of Chinese tech giant JD.com (NASDAQ:JD).
Many TCEHY stock investors are viewing this latest sale negatively because they see it as a lack of confidence in Tencent. Conversely, PROSY stock investors like that the technology investor is buying back its own stock. That’s because the move will help boost its share price by reducing the number of shares outstanding.
PROSY stock has dropped over the past year as its holdings of Chinese tech stocks have taken a beating amid the market selloff and government crackdown. Looking forward, Prosus says it is also “in talks to sell its stake” in Russia’s Avito. That company was valued at $6 billion before Russia invaded Ukraine.
What’s Next for Tencent?
Although TCEHY stock is down slightly today, the long-term impact of the share sale shouldn’t be too bad. Of course, it’s never good when a major shareholder trims its stake. But the reality is Prosus will continue to be one of the largest owners of Tencent stock. Investors should not take the sale as an indicator of any fundamental problems with the company itself.
On the date of publication, Joel Baglole did not hold (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.