Tencent has signed an agreement to pick up another 5% stake in Chinese publicly traded Internet games developer Zhejiang Century Huatong Group for about 2.8 billion yuan ($429.2 million), as the social media and gaming giant continues to expand its dominant position in the country’s gaming industry.
Shenzhen-based Tencent, which owns some of the world’s most popular games like League of Legends and Call of Duty: Warzone, agreed to acquire an additional 372.6 million shares, or a 5% stake, in Century Huatong.
Once completed, the deal would make Tencent the firm’s second-biggest shareholder with a total of 10% stake, the investee disclosed in a filing with the Shenzhen Stock Exchange (SZSE) on Monday.
Alongside Tencent’s investment, Century Huatong’s chairman Wang Miaotong also plans to sell a 5% stake to founder and CEO Wang Ji at the same price of 2.8 billion yuan. It would see Wang Ji become the biggest shareholder with a 14.9% stake.
As its revenues from online games grow rapidly driven by revenue contributions from the home market, Tencent has been ramping up efforts to further expand domestic game offerings and to consolidate its position as the largest gaming firm in China.
It completed at least 33 investments in the global gaming industry in 2020, compared to only nine in 2019. About 70% of these investments were made into small- and medium-sized gaming companies in China, according to statistics compiled by nadianshi.com, a Chinese publication that specialises in the gaming sector.
The deals would help Century Huatong “explore more cooperation opportunities in the gaming field with strategic investor Tencent,” said the firm in the filing. “We expect to leverage each other’s resources and strengths in our respective areas to bring new revenue growth and optimise our shareholder and governance structure as a listed company.”
Century Huatong expects the transactions to help it “keep the focus on the key strategy of developing games,” “enhance profitability,” and “provide solid support to sustainable development.”
Founded in 2005 and went public in 2011, Century Huatong is primarily involved in the development of Internet games and automotive parts.
The firm registered revenue of close to 7.8 billion yuan ($1.2 billion) in the first half of 2020, up 12.0% year-on-year. Mainly driven by the gaming business which contributed to more than 86.6% of its gross revenue, its net profit grew 36.0% to slightly over 1.6 billion yuan ($246.1 million) during the same period, according to its latest financial results in August 2020.
The new investment could follow Tencent’s earlier acquisition of extra shares in Ourpalm, a Chinese mobile games company also listed in Shenzhen. Tencent paid 265 million yuan to boost its equity interest in the firm from 2.01% to 3.97% to become its third-largest shareholder, Ourpalm revealed on February 2.
Tencent first invested in Ourpalm in June 2017 when it acquired the initial 2.01% stake for 490 million yuan. It was said to be the tech major’s maiden investment in a gaming firm listed domestically.