SoftBank, Tencent Lead Way as Asia’s Tech Investors Become Stock Sellers

Tencent Holdings Ltd.

, a tech giant that earlier amassed stakes in hundreds of tech firms, is divesting itself of billions of dollars in shares of listed companies. Meanwhile, Tencent’s biggest shareholder, Prosus NV, is cutting its large stake in the Chinese social-media and gaming company.

“It feels as though the smartest guys are leaving the room,” said Jon Withaar, head of Asia special situations at Pictet Asset Management.

The big sellers are in many cases facing pressure from their shareholders to improve returns. Cashing out of their long-term investments also frees up funds for more productive uses and offers a simple way to reverse heavy losses. After SoftBank lost about $23 billion between April and June, Chief Executive Officer Masayoshi Son said he had become “somewhat delirious” during the company’s investment spree. He pledged to cut back, and the company’s subsequent decision to divest itself of $22 billion in Alibaba shares helped it return to profit in the three months through September.

While many longtime shareholders are realizing hefty profits from stakes they bought many years ago, their sales in the currently weak market environment also reflect their longer-term outlook for the tech companies.

“The TMT landscape has matured,” said Kerry Goh, founder and CEO of Kamet Capital Partners, a multifamily office, referring to technology, media and telecommunications, a grouping that includes internet-platform companies and other new-economy businesses. “The growth prospects are no longer as good as they were a few years ago.”

mr. Goh said Chinese internet companies, in particular, face a lot more competition and increased antitrust scrutiny from regulators, which means they have to find ways to increase revenue and profits organically—instead of through acquisitions, as they did in the past.

Investors are watching for further signs of divestments by strategic shareholders next year.

Tencent sold a $3 billion stake in the New York-listed internet company Sea Ltd.

this year and recently said it would dispose of $23.2 billion in shares of the food-delivery company Meituan the same way it did for a $16.5 billion holding in the online retailer JD.com Inc.,

through a special dividend to Tencent shareholders.

China’s government has clamped down on the tech sector and hit Meituan with a more than $500 million fine last year. But there is a commercial as well as a political logic to Tencent’s divestments, said John Choi, head of China internet research at Daiwa Capital Markets.

“Antitrust concerns could have been one of the major factors but not the only factor, as Tencent also has to consider the current market conditions and their investment-return profile,” Mr. Choi said.

Investors have now turned their attention to other companies Tencent holds large stakes in, including Kuaishou Technology and Pinduoduo Inc.,

said Steve Chow, an analyst covering the Chinese internet sector at Agricultural Bank of China International.

James Mitchell, chief strategy officer at Tencent, said on an earnings call in November that when Tencent considers distributing some of the shares it holds to its own investors, it looks at the strength of the company, the health of the industry it is in and the returns it can get. Tencent has generated an internal rate of return of around 30% from its Meituan stake, he said.

SoftBank is the world’s biggest technology investor, creating an almost endless list of potential divestments. It holds stakes in the Indonesian tech firm GoTo Group and the Indian logistics company Delhivery Ltd.

, both of which listed this year. It has already exited its position in the Chinese online real-estate broker KE Holdings Inc.,

generating a gain of more than $1 billion.

SoftBank turned a $20 million investment in Alibaba in 2000 into a stake that was valued at $200 billion at its peak. While that is one of the most successful investments of all time, SoftBank has trimmed its position in Alibaba and made big punts on other companies—with occasionally disastrous results.

The Japanese company prefers using complex financing solutions rather than straight sales to unload its Alibaba shares. It divested itself of $22 billion in Alibaba shares this year by unwinding a complex derivatives position that was similar to a secured loan backed by its shares in the Chinese company. SoftBank still booked a loss of more than $6 billion on its investment portfolio in the six months ended September.

Although SoftBank and Tencent are the most prominent names being watched by investors, there are other potential sellers that could come to the market next year. Alibaba and a related company, Ant, have big portfolios of tech investments. Funds such as Sequoia Capital and Tiger Global Management LLC have made big bets on Asian tech.

Prosus’s selling of Tencent shares does not affect its view on China or Tencent, and it intends to be a long-term shareholder, a Prosus spokesperson said. “We are firm believers in Tencent and are very bullish on its prospects,” he said.

Indian stocks are an obvious source of divestments, given the expiration of lockup agreements for many companies this year. SoftBank raised $200 million after selling part of its stake in the mobile-payments company Paytm in November. The Chinese fintech company Ant and the US ride-hailing company Uber Technologies Inc.

both sold shares in the food-delivery company Zomato Ltd.

this year.

Demand for shares from India’s large pool of domestic investors provides a good cushion for foreign investors, who can easily exit their positions if needed, said Subhrajit Roy, head of global capital markets for India at Bank of America. “That gives a lot of comfort to foreign investors,” Mr. Roy said.

The form of divestments has been disappointing for banks this year, with many of the biggest deals being done through open-market share sales or special dividends. Many bankers think the size of block trades—in which banks market a large number of shares to institutional investors, pocketing a fee for their trouble—will remain small next year. Global block-trade volume fell 67% to $61 billion this year through Nov. 30, down from $185.8 billion during the same period in 2021, according to Dealogic.

The amount of volatility in the stock market will be a big factor.

“The market this year has been very volatile, with people now holding different bearish and bullish views for next year,” said James Wang, co-head of equity capital markets for Asia excluding Japan at Goldman Sachs. “Regardless, if you are an investor holding a large chunk of stock, say in the billion-dollar range, you do want to take some risk off the table.”

mr. Wang said that block trades, follow-on offerings and convertible-bond issuance could pick up in the first quarter of 2023. That would then lay the groundwork for the resumption of initial public offerings as early as the end of the second quarter, he said —a bit of good news for bankers.

—Serena Ng contributed to this article.

Write to Dave Sebastian at [email protected]