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QuestionsCategory: Investor PsychologyTencent sell stakes in SEA
Theodore Tan asked 2 weeks ago

Hi FP,
https://www.bloomberg.com/news/articles/2022-01-04/tencent-to-sell-a-stake-in-singapore-s-sea-for-up-to-3-billion
I was wondering how to calculate the number of shares that Tencent is selling in SEA.
 
The number of shares issued by SEA to public is around 470,000 shares. USD 208 is the selling price of SEA shares by Tencent.
However when I calculated the number of shares Tencent is selling at USD 3 billion. The number of shares turn out to be (USD 3 billion/ USD 208=1,442,3076 shares)
The amount of shares sold by Tencent seems to be higher than what SEA issued to the public
Can I clarify if I understand this correctly?
 
This news also seems only like a corporate action by Tencent and SEA and has no financial impact to SEA.
My assessment of SEA is that, using median price to sales of 12.97, is roughly at USD 208 based on TTM Sales per shares of  USD16.02.
It doesn’t make sense for Tencent to sell at USD 208 when they could have cashed out a few months ago at USD 282.
 
Will you have any input to this? Appreciate any add on!
 
Thank you!

Victor Chng replied 2 weeks ago

Hi Theodore,

FYI, Leo is our analyst at the Fifthperson.

Theodore Tan replied 2 weeks ago

Thanks Victor! Didn’t know you guys are monitoring SEA as well! Will be happy to hear more from Leo!

1 Answers
Choon Leo Wang answered 2 weeks ago

Hi Theodore,
According to yahoo finance, Sea Limited has about 554.63 million outstanding shares. Tencent sold about 14.4 million stakes. 14.4m/554.63m= 2.6%
On the surface, Tencent’s sale is unlikely to have any material impact on Sea Limited.
Sea Limited stock price might not be the only factor that affects Tencent’s decision. Tencent might be forced to reduce stake in Sea Limited due to scrutiny from the Chinese regulator or perhaps China – India relationship may have hampered Sea Limited’s expansion in India ( complaints that Sea limited is under Chinese ownership and should be banned along with other apps)
We can’t say for sure, but we’re closely monitoring further developments.

Theodore Tan replied 2 weeks ago

Hi Leo.

Thanks. Yeah I went back to double check and noticed I was wrong. Looks like SEA has to get around a lot of regulatory issues and some other obstacles should they decide to expand in other geographical areas. Can you share what you are monitoring or expecting for SEA? I hope they dont raise more capital through issue of more shares again.

I have one question to ask. When Tencent sold their shares, are their shares part of the public pool of 554.63 million shares? I will assume so because SEA is IPO and is publicly listed. Hope to get confirmation on this!

Thank you

Choon Leo Wang replied 1 week ago

Hi Theodore,

These are some of things I am currently monitoring:
– E-commerce progress in Latam , India, Europe,
– New Self Publishing Game Development
– Free Fire popularity ( Sea Limited is heavily reliant on Free Fire revenue to fund their e-commerce expansion)

I will be releasing a deep dive for Sea Limited on AlphaLab next month. It should give you a better understanding of my investment thesis for Sea Limited

In my opinion, Sea is unlike to raise new capital unless there is a significant slow down in their gaming division.

yes , those shares that Tencent sold are part of the 554.63 million shares.