Investing.com -- Tencent Holdings (HK:0700) executed its largest single-day share buyback on Wednesday, aiming to stabilize its stock price after being added to a Pentagon list, which led to one of the steepest selloffs the company has faced in years.
The Chinese tech giant, which holds the highest market capitalization in the country, spent approximately $193.3 million to repurchase 4.05 million shares, according to a filing with the Hong Kong stock exchange. This followed a buyback of 3.93 million shares on Tuesday, marking an increase in Tencent’s ongoing repurchase initiative.
The two-day buyback effort came after Tencent’s shares experienced their second-largest drop in the past year on Tuesday. The decline followed the US Defense Department’s decision to classify Tencent as a company with military ties, citing China’s integration of commercial and military technologies.
Tencent disputed the classification, calling it a “mistake,” and announced plans to seek removal from the list.
Tencent’s shares dropped a further 2.7% during Wednesday’s trading session in Hong Kong.
According to Barclays (LON:BARC) analysts, Tencent’s addition to the US Department of Defense's (DoD) Section 1260H list “has no direct legal ramifications for US investors.”
Market confusion arose due to the existence of two similarly named lists – the DoD’s 1260H list and the US Treasury’s NS-CMIC list. While the NS-CMIC list requires US investors to divest within 12 months, the 1260H designation carries no legal consequences or restrictions on trading Tencent’s stock, analysts clarified.
However, citing previous cases, analysts cautioned that the longer a company remained on the DoD's 1260H list, the higher the likelihood it was eventually added to the Treasury's NS-CMIC list.
“In the years since the two lists came about, most of the listed companies that were added initially to the DoD list eventually got added to the Treasury's NS-CMIC list,” analysts said. One notable exception was Xiaomi (OTC:XIACF), which sued the DoD and won the lawsuit, and was subsequently removed from the list.
While it is unclear whether Tencent follow Xiaomi’s precedent, the analysts expect an overhang on Tencent shares for the coming few months.
Tencent began ramping up its share repurchase program last year, more than doubling its buyback expenditure to roughly $14.4 billion in 2024 compared to the previous year, according to Wind Information data.