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Tencent is distributing a $16 billion stake in JD.com

China's second-largest e-commerce company, JD.com, is being sold by Tencent for a fraction of its value in order to curry favor with the Chinese government, which has been cracking down on tech giants in an effort to rein in their growing power and influence.


Following the completion of its acquisition of JD.com (JD), Chinese gaming and social media giant Tencent (TCEHY) intends to distribute a one-time dividend to its shareholders worth more than $16 billion on its JD.com stake, the company announced in a stock exchange filing on Thursday. It plans to distribute 457 million shares, representing 86.4 percent of its stake in JD.com and 14.7 percent of JD.com's total number of shares on the open market.


At the moment, Tencent owns a 17 percent stake in JD.com. The company's stake in JD.com will fall to 2.3 percent following the distribution, implying that it will no longer be the company's largest shareholder.


Richard Liu Qiangdong, the company's founder, who currently owns 13.9 percent of the company, will overtake him as the company's largest shareholder, according to the company's most recent annual report. Walmart (WMT) is the company's second-largest shareholder, with a 9.3 percent stake in the company.


Tencent's unexpected retreat comes at a time when the country's internet giants are under intense pressure from the Chinese government.


Last year, China intensified its scrutiny of the technology industry by issuing comprehensive regulations to fight unfair competition, slapping companies with massive fines, and ordering some companies to completely restructure their operations.


The Chinese internet giant Tencent stated in a filing on Thursday that JD.com has reached a point where it is able to fund its own growth.


Consequently, Tencent believes that the "appropriate time" has arrived for the company to transfer the majority of its stake to its shareholders.


Tencent's "dominance" in the market could be eroded as a result of the move, which "could be an attempt to shift toward fairer competition, as well as to align with the Chinese authorities' agenda," according to IG market strategist Yeap Jun Rong in a research note published on Thursday.


Following the closing of the transaction, Tencent President Martin Lau will resign from his position as a director of JD.com, according to the filing.


As announced in separate statements on Thursday, Tencent and JD.com said they will "continue to maintain their mutually beneficial business relationship," which includes their ongoing strategic partnership agreement.


Tencent's stock rose by more than 4% in Hong Kong on Thursday, while JD.com's stock fell by more than 7% in the same city.

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