In a statement issued today, New York-listed Sea said it will propose a share structure change at the upcoming annual general meeting in February, by which Tencent’s voting power in the company would be reduced to “less than 10%”.
As of March last year, Tencent had 23.3% of the voting rights in Sea, according to Sea’s annual report.
Sea has dual-class shares, comprising Class A shares and Class B shares, the latter of which is entitled to three votes per share. Currently, Class B shares are owned by Tencent and Sea’s founder and CEO Forrest Li, collectively representing 52% of the total voting power.
According to the statement, Tencent will convert all the Class B shares it owns to Class A shares, leaving the CEO as the only owner of Class B shares. At the same time, Sea plans to increase the voting rights for each Class B share to 15 votes, from the current three.
As a result, the CEO would hold nearly 60% of the control in his company – mostly from Class B shares that account for 57% of the voting power in the new structure – enabling him to make decisions more promptly.
As of March 2021, Li had about 38% of the total voting power in the company.
The proposed share structure change comes as Sea aggressively expands its Shopee e-commerce business beyond its home turf of Southeast Asia, capitalising on the global digitalisation shift.
Over the past months, the company launched its e-commerce platform in France, Spain, Poland and India, following its entry into several Latin American markets.
However, having a Chinese tech company as a shareholder with major control appears to have raised some concerns, as tensions between China and several other countries escalate.
In India, where the government banned Chinese apps, a local business body in December called for a ban of Shopee in the country, claiming that the e-commerce brand was controlled by Tencent, according to local reports.
Explaining the changes, Sea said in the statement: “As Sea has scaled significantly to become a leading global consumer internet company, it is in the best interests of the company in pursuing its long-term growth strategies to further clarify its capital structure through the contemplated changes.”
Tencent first invested in Sea in 2010, only a year after Sea’s foundation. Both companies had a common core business: online gaming. Tencent’s control has been gradually reduced over the years.
According to past annual reports, Tencent had 29.1% of voting rights in 2019, but that was lowered to 25.1% in 2020, and 23.3% in 2021, due to dilution from new share issuances.
Meanwhile, dual-class share structures that allow founders to maintain control of their company are a popular choice for entrepreneurs because they give them the ability to both make decisions quickly and take long-term perspectives. Nasdaq-listed Singaporean super app Grab’s CEO Anthony Tan, for example, holds 60% of voting power in his company.
Sea said the proposed changes must receive at least 75% of the votes cast at the annual general meeting in order to be adopted.