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Tencent holds more than $1bn in cash.
Tencent, China's most valuable internet firm with a market capitalisation bigger than eBay and Yahoo, turned heads in April when it paid $300m in cash for 10% of Digital Sky Technologies (DST), operator of Russia's most popular social networking site and an investor in Facebook.
The Chinese firm, with its chubby penguin logo that has become synonymous with the internet in China, was also shortlisted to buy AOL's chat messaging platform ICQ and vied to buy social networking site Friendster, before eventually losing out to other buyers.
"The DST investment is ... part of our strategy to gradually go international," Tencent president Martin Lau said in a conference call last week, after the company reported a record quarterly profit up 70% from a year ago.
Analysts said Tencent could be looking for deals in Brazil, and to boost its stakes in game operators in Vietnam and India.
Tencent has already mastered many of China's internet spaces, including chat and online games, and is using its expertise and cash to try to export its success to other developing markets, analysts said.
It is China's largest online game operator and runs a wildly popular instant messaging service called QQ, with over 580 million users.
Tencent, along with rivals Shanda Games and NetEase.com, is riding strong on the popularity of internet chat and gaming in the world's largest internet and mobile markets.
Tencent could also use stock to fund purchases, with shares that have logged an enviable 42-fold increase since their 2004 IPO, rising from an offering price of HK$3.70 to their current price of around HK$155.
"We are all very worried," said an executive from a rival online game company in China, who declined to be named. "They are really bent on being big."
Analysts said the global route is the logical choice for the cashed-up company.
"If they really want to be a global internet company, they really need to be present in countries other than China," said Citigroup analyst Alicia Yap. "Look at Google; it is all around the world."
Earlier this year, Tencent, was said to be a possible contender for some of China's internet search business with the vacuum left by Google.
Shopping for global assets
Tencent already has strong overseas connections through its 35% ownership by Naspers.
In 2008, Tencent agreed to pay $7.5m for an equity stake in Naspers' Indian unit MIH India, which owns a Facebook-like site called ibibo. Tencent also owns a minority stake in VinaGame, Vietnam's largest online game operator.
"We want to find markets where there is big potential for growth and particularly if there are similarities we can draw from the experience of China," Lau said in the call.
Tencent's foreign forays also mesh with a broader trend that has seen cash-rich Chinese internet firms shop for global assets. Co-founded by the notoriously media shy Ma Huateng, also known as Pony Ma, the firm is taking the approach of a passive investor, similar to Naspers' position in the Chinese company.
Given the different internet conditions in each country, analysts said it is unlikely Tencent will take an active advisory stake in any of the companies it invests in or enter the countries directly.
- Reuters
Fin24.com is a Naspers publication.
