Tencent Dives on Report of Record Fine for Money-Laundering

(Bloomberg) — Tencent Holdings Ltd. extended losses to close more than 10% lower after the Wall Street Journal reported it faces a record fine for violating Chinese anti-money laundering regulations.

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The People’s Bank of China found Tencent’s WeChat Pay had allowed the transfer of funds for illicit purposes such as gambling, the newspaper reported, citing unidentified people familiar with the matter. WeChat Pay was also judged non-compliant with other rules that required Tencent to identify users and merchants transacting on the platform, the Journal said.

A probe into potential money-laundering would open a new front in Beijing’s sweeping crackdown on the internet industry, an effort that’s already wiped out hundreds of billions of dollars in arenas from ride-hailing and e-commerce to online education. Tencent itself has thus far mostly escaped formal regulatory action. Unlike rivals Alibaba Group Holding Ltd. and Meituan, the WeChat operator hasn’t yet been the direct target of any government probe.

The report comes as Beijing prepares to step up efforts to fight illegal fund flows, aiming to avert systemic risk and shore up the financial industry. In January, the central bank announced it will begin a nationwide campaign to clamp down on money laundering in the years to 2024.

Central bank officials, however, discovered irregularities on WeChat Pay, which competes with Ant Group Co.’s Alipay, after concluding a routine inspection of the payments platform in late 2021, the Journal reported. Regulators are discussing the size of the impending fine but it could run to hundreds of millions of yuan, larger than typically levied in the past, it added.

Tencent’s shares closed Monday at their lowest level in almost two years. The spread for Tencent’s dollar bond due 2030 widened 22 basis points to 228 basis points, according to Bloomberg-compiled data, on pace for a record high and nearly matching Friday’s jump. Tencent’s American depositary shares fell 7.2% in New York.

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Naspers Ltd., which invested in Tencent as a startup more than 20 years ago and remains the biggest shareholder through Prosus NV, plunged as much as 15% in Johannesburg, the most since 2000. The stock is down 38% this year.

Prosus, which Naspers spun off in 2019 and which houses e-commerce assets such as the Tencent stake, fell as much as 11% in Amsterdam to trade at record lows.

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A Tencent spokesperson did not immediately respond to a request for comment.

The report casts uncertainty over Tencent’s rapidly growing fintech division. WeChat Pay is at the heart of the social media giant’s businesses, helping fuel transactions within games, mini-programs like food delivery service Meituan and ride-hailing app Didi, as well as merchant payments for more than a billion consumers across the country. As of 2021, WeChat Pay handled an estimated 40% of China’s mobile payments, second only to Alipay.

Under recently established regulations, Tencent is required to restructure its fintech business under a financial holding company, much like Alibaba-founder Jack Ma’s Ant. But the connection between WeChat Pay and the rest of Tencent’s finance division could make the separation, which executives have said would have minimal impact on operations, more complicated.

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Elsewhere, Tencent has been grappling with a rapidly tightening regulatory environment.

Its investment arm could be impacted as President Xi Jinping’s administration grows wary of what it deems a “disorderly expansion of capital.” WeChat has drawn scrutiny from regulators for building an enclosed internet ecosystem that spans everything from e-commerce to short videos and online payments.

Regulators have imposed strict curbs on gaming time for minors, while halting the approval of new games in past months. And last year, the country’s technology overseer warned internet firms to stop blocking rival services, prompting WeChat to start allowing external links to apps run by the likes of Alibaba and ByteDance.

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(Updates with U.S. share trading in sixth paragraph.)