Tencent Holdings will use one of its subsidiaries to buy more than one billion shares of China Youzan Limited at HKD 0.53 (USD 0.07) apiece. That price includes a 17% discount from the previous day’s closing price of HKD 0.64 per share, according to Youzan’s filing with the Stock Exchange of Hong Kong on Wednesday. The investment will translate to a 6.7% stake in Youzan for Tencent.
Youzan helps merchants establish, operate, and promote their WeChat stores.
Tencent is among the five subscribers of the 1.7 billion shares that will be issued soon. In all, the sale will channel HKD 910 million to Youzan.
Youzan will go on a publicity blitz after its shares are picked up. The company said 31% of those funds will be used for marketing, and 50% will be allocated for the promotion of advertising services. It added that 6% of the proceeds will be spent on product development, and 3% will be for system upgrades.
Youzan recorded a loss of HKD 839.4 million in 2018—more than a fivefold increase from HKD 135.1 million in 2017—mainly due to increases in expenses related to sales, distribution, and administrative activities; amortization of intangible assets; as well as the issuance of awarded shares.
Earlier this year, the company drew criticism after making demands for its employees to work overtime to achieve 12-hour workdays, six days a week. Local authorities opened a case to investigate whether Youzan had breached labor law.
KrASIA spoke to the leader of the West Lake District labor supervision team on Wednesday. The official said that the investigation concluded that Youzan was not running a nine-to-nine work schedule. He added that the team had shared information on labor law with representatives of Youzan after the investigation.
On Wednesday morning, Youzan’s stick price opened at HKD 0.75, or more than 17% higher than the previous day’s closing price.
Contact the writer at jingli@kr-asia.com