FINANCE: Pony Ma Sells Down Tencent, Richard Li Beefs Up ZTE

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Bottom line: Richard Li’s investment in ZTE reflects the company’s improving position after an  overhaul during the last 2 years, while Pony Ma’s sell-down of his Tencent stake looks like ordinary share selling by a company founder. 

Pony Ma sells Tencent, Richard Li buys ZTE

A couple of stock sales are in the news as we head into the new week, led by Pony Ma’s sale of a massive HK$3.8 billion ($500 million) worth of shares in his company, social networking giant Tencent (HKEx: 700). While Ma was busy cashing out some of his stake, Hong Kong’s Richard Li, son of billionaire Li Ka-shing, moved in the other direction by boosting his stake in ZTE (HKEx: 763; Shenzhen: 000063), the telecoms company emerging from a major overhaul over the past 2 years.

Of these 2 moves, the latter is probably more significant since it marks a vote of confidence in the turnaround story of ZTE by Li, whose investment decisions are fairly well respected though nothing like those by his much better-known father. Pony Ma’s sell-down of his stake looks more routine, though it’s still a relatively large portion of his sizable holdings in China’s second most valuable Internet company, with a market value of $180 billion.

Let’s begin with Richard Li, who disclosed in a stock exchange filing that he was increasing his stake in ZTE to 5 percent from a previous 4.94 percent. (English article) The filing marks the first time we’re learning that Li was a major investor in ZTE, since his latest purchase pushes him to the 5 percent level that requires investors to disclose their positions.

ZTE’s market value now stands at about $11 billion, meaning Li’s investment in the company is worth about $550 million, not a huge sum for such a rich individual. News of his investment didn’t do much for ZTE’s stock either, which closed down a modest 0.8 percent in the final trading session of last week.

I used to be quite bullish on ZTE a decade ago when it and rival Huawei both emerged as 2 of China’s fastest-rising stars in the high-tech world by exporting their networking equipment around the globe. While Huawei was the elder brother, successfully moving into major markets like Britain and France, ZTE was a smaller but still quite successful sibling that found more success in developing markets like Africa and Eastern Europe.

But the company stumbled as the global market for big networking equipment slowed, and it spent aggressively to build up a low-margin business selling cellphones under other companies’ brands. At one point its stock lost two-thirds of its value from its 2011 highs, though now it’s regained some of that.

Stock Rebound Ahead?

I’m generally positive about ZTE’s  clean-up over the last 2 years, though I’m still not completely convinced that it has the right product mix to reclaim its former status as an up-and-comer. Richard Li clearly feels more strongly about the company, and ZTE’s stock could indeed be set for some healthy gains next year if China’s stock markets avoid another meltdown like the one this past summer.

Next there’s Pony Ma, whose Tencent stake fell to 9.1 percent from 9.36 percent after a series of sales last week, netting him about $500 million. It’s somewhat significant that Ma does appear to be slowly selling down his stake in Tencent. His holdings stood at 10.2 percent at the end of 2013, meaning he’s sold about 10 percent of his Tencent stock over the last 2 years.

Ma certainly isn’t the only one selling down his stock, which is relatively common for company founders after their IPOs. Alibaba (NYSE: BABA) founder Jack Ma has promised investors he won’t sell down his stake in the company for now, though he was reportedly in talks for a $2 billion loan earlier this year that would have used his company shares as collateral. (previous post) In both cases, Pony Ma and Jack Ma have worked hard and long to get where they are, and small sell-downs in their company holdings are part of the rewards they should get for all of their efforts.

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