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JD.com Stock Tumbles After Tencent Dumps $16.4 Billion Stake Amid China Tech Crackdown

Tencent, one of China's most valuable companies, will distribute $16.4 billion of its stake in online retailer JD.com to existing shareholders in the form of a special dividend.

JD.com  (JD) - Get JD.com Inc. Report shares tumbled Thursday after China-based gaming and social media group Tencent Holdings  (TCHEY)  dumped $16.4 billion shares in the e-commerce group amid Beijing's broad crackdown on the country's powerful tech sector.

In a surprise move Thursday, Tencent unveiled plans to transfer most of its JD.com stake -- around 457.3 million Class A shares -- to existing shareholders in the form of a dividend, cutting its holding from 17% to around 2.3%, leaving Walmart  (WMT) - Get Walmart Inc. Report, with a 9.3% stake, as JD.com's biggest investor.

JD.com also said Tencent President Martin Chiping Lau will no longer serve on the online retailer's board of directors.  

“We are also thrilled to welcome the shareholders of Tencent as our new shareholders. We are very proud of our technology-enabled, supply chain-based business model, which is deeply rooted in real economy and has been continuously executed by us over the past 18 years following our long-standing business principle of doing business the right way," said JD.com CEO Richard Qiangdong Liu. "We believe we are well positioned to drive long-term value for our enlarged shareholder base.”

JD.com's U.S.-listed shares were marked 9% lower in early trading to change hands at $67.05 each. Tencent jumped 3.75% to $59.16 each. 

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The Tencent decision follows a series of orders and penalties levied by the Chinese government amid a broader crackdown on the tech sector, including Tencent, which has clashed with Beijing over a number of issues this year.

Earlier this year, Beijing regulators fined Alibaba Group Holding  (BABA) - Get Alibaba Group Holding Ltd. Report a record $2.8 billion as part of a far-reaching anti-monopoly probe by China’s State Administration for Market Regulation, which said some of its practices "infringe on the businesses of merchants on the platforms and the legitimate rights and interests of consumers."

China extended its crackdown on the tech industry in September with a warning to the country's biggest companies to stop blocking links to their rivals' platforms.

In a move many analysts interpreted as another shot across the bow of tech giants Alibaba and Tencent, China's Ministry of Industry and Information Technology said it was "guiding relevant companies to carry out self-examination and rectification" of their long-standing practice of blocking access to rivals. 

"Despite the sizable special share distribution, given Tencent’s shareholders have the flexibility to decide whether to hold JD.com shares or sell, we believe some shareholders would choose to hold the shares as JD.com is one of the highest quality names in ecommerce, which would mitigate the selling pressure, in our view," said Daiwa Capital Markets analyst John Choi. 

"We believe the near-term selling pressure on JD’s share price presents a good opportunity for investors to accumulate as Tencent’s stake reduction is unlikely to have an impact on JD’s operation. JD is our top pick among the e-commerce stocks.," he added.