Tencent drops 4% on Naspers' stake-cut plan

South African media firm to sell stock worth over $10 billion and pare holding to 31.2%

Shares of Tencent Holdings Ltd experienced a record intraday fall on Friday, as its largest backer announced a holdings cut plan for the first time in nearly two decades.

The internet giant saw daily transaction volume top HK$100 billion ($12.7 billion) in Hong Kong on Friday, with its price tumbling as much as 4.42 percent to HK$420.

This came just a day after it voiced intentions to ramp up acquisitions and investments, which could weigh on margins in the short run.

South African media conglomerate Naspers Ltd said on Thursday that it would sell stock worth more than $10 billion, or equivalent to 2 percent of its shares, in Asia's biggest company by market capitalization, trimming its share in Tencent to 31.2 percent.

In a statement, Naspers said Tencent understood and supported its intention to divest.

Karen Chan, an equity analyst at Jefferies Group LLC, doesn't see the move as a timed profit-taking gesture and thinks it won't have negative implications on Tencent's growth potential.

"We believe this is more to improve Naspers' own cash flow and allow them higher flexibility in pursuing investment opportunities," said Chan in a report on Friday, in which the brokerage maintained a "Buy" rating on Tencent.

"We think it is a good opportunity to buy into dips given Tencent's solid fundamentals … to reinforce Naspers' balance sheet," said CICC analyst Natalie Wu.

Peter Zemsky, deputy dean of business school INSEAD, is optimistic about Tencent's prospects, saying its next approach should be to increase share of wallet (a customer's total spend) given that penetration rate of services is already high.

"They probably may not grow at the same rate as before … but Tencent can still be aggressive as more value-adds get digitalized and more people spend substantial amounts of time on WeChat, which is pretty valuable," he said.

But there are signs for concern, with the latest quarterly revenue missing estimates and user growth of the iconic WeChat messenger app near-plateaued.

"There's not a lot of upside to that figure (1 billion WeChat users), which means Pony Ma, the founder, chairman and CEO, needs to extract more money from each existing user," Tim Culpan, a senior technology columnist for Bloomberg, said in a report on Thursday.

The development came as the Johannesburg-listed media firm faces mounting pressure from shareholders to close the widening gap between its own market value at roughly $122 billion and the lucrative investment, which has appreciated 5,500 times over 17 years to $175 billion.

Albert Saporta, a director of Geneva-based investment advisory firm AIM&R, has openly said the size of the discount was too big, suggesting that the company's other assets are not effectively reflected in the valuation.

"You get to a point where a 40 percent discount to your underlying net asset value is ridiculous… so this is potentially a move by management to try and narrow that gap," Michael Treherne, a fund manager at Vestact and a boutique asset manager in Johannesburg, told Reuters News on Friday.

Ouyang Shijia in Beijing contributed to the story.