Tencent steps up buybacks as share price sinks

Chinese social media and gaming group Tencent has increased share repurchases to spend more than $3bn this year as the company’s stock price plumbs four-year lows.

The Shenzhen-based company has focused on returning cash to shareholders with its outlook dented by China’s sagging economy and President Xi Jinping’s crackdown on gaming.

The Chinese group increased its buyback outlays to about HK$600mn ($76mn) a day last week, a pace which if maintained could hit HK$90bn next year, on par with the buyback programme at rival Alibaba, according to estimates from analysts at Bernstein.

The repurchases are part of a strategic shift for the Chinese tech giant. Beijing’s antitrust scrutiny of its aggressive domestic dealmaking has slowed its huge investment outlays, which had previously consumed extra capital.

Tencent made just 46 investments in Chinese groups in the first nine months of the year, down from 199 over the same period in the prior year, according to data from research group ITjuzi.

With its portfolio of public and private holdings worth roughly $140bn, Tencent is also weighing sales of as much as Rmb100bn ($13.8bn) of its holdings in the coming months, which could be funnelled into the buybacks or distributed as special dividends to shareholders.

Tencent shares have lost more than 67 per cent of their value since February last year, hitting lows not seen since 2018. In August, the company reported its first-ever quarterly revenue decline, later losing the mantle of China’s most valuable company to liquor maker Kweichow Moutai.

In comparison to Jack Ma’s Alibaba, Tencent has done less to publicise its growing share buybacks. Tencent declined to comment on the buybacks to the Financial Times.

In May, Tencent authorised a program to buy back 10 per cent of its outstanding shares over the following 12 months. It has repurchased 76mn shares this year, less than 1 per cent of the total but far greater than the cumulative 26mn shares repurchased on the open market over the past decade.

James Mitchell, Tencent’s chief strategy officer, told Wall Street analysts in August that the company’s cash flow from operations and large equity portfolio provided “substantial ammunition . . . to continue doing dividends and buybacks at an aggressive rate”.

Robin Zhu of Bernstein noted that the “buybacks suggest management is more optimistic than the market”.

The research group estimated that Tencent could return 5-6 per cent of its market capitalisation to shareholders next year through a combination of dividends, buybacks and distributions.

But Zhu said “gaming is still the key” for Tencent, adding that investors were worried Beijing’s tough restrictions on youth gaming and the tepid pace of game approvals could cause the group’s most profitable business line to continue shrinking next year.

Tencent this year distributed $16bn of shares in ecommerce group JD.com to investors and cashed out $3bn from selling shares in gaming group Sea.