Chinese giant Tencent Holdings leaves huge imprint at Vietnam's VNG Corporation

Tencent Holdings showed up in 2018, but the Chinese giant marked its presence at VNG Corporation a decade before and has played an important role in the strong rise of Vietnam's first technology unicorn.

Reuters recently reported that VNG Limited, which holds 49% of direct shares in VNG Corporation, will hold its plan for a Nasdaq listing to the first half of 2024. This decision was made after the company and its advisors held an early meeting with investors before an official roadshow.

According to Bloomberg, after seeing mixed performances by a trio of new public companies this month, VNG was advised to hold off until market demand improves, said a person who asked not to be identified. The IPO could be postponed until next year, the source said.

VNG Corporation has not yet released official information. However, even if it has to delay the IPO until next year, VNG Limited's Nasdaq listing is still highly anticipated, since this will be the first technology enterprise from Vietnam to list overseas. With industry prospects and development potential in the Vietnamese market in particular and Southeast Asia in general, VNG Corporation has many factors to become a global enterprise.

The strong development of VNG Corporation bears the imprint of businessman Le Hong Minh and his co-workers. It is also the silhouette of shareholders from China, with Tencent Holdings most mentioned by domestic and foreign media.

In 2008, Tenacious Bulldog Holdings Limited, a member of Tencent Holdings, bought 40,010 VNG Corporation shares at a price of VND121,693 ($7.2 under the then exchange rate) per share. Another foreign investor, Prof. Treasure Sarl, also bought 9,990 shares at VND139,568 each ($8.2).

According to the prices of VNG Corporation shares issued for the two foreign shareholders, the valuation of this technology company at that time was about VND3-3.5 trillion ($200 million under the then exchange rate), an admirable number for a 3-year-old company.

Tencent Holdings’ 2008 annual report said it owned more than 20% of an online game company in Asia. Quite coincidentally, also in 2008, Tencent's former M&A director - Johny Shen (Johny Shen Hao) - moved to be in charge of finance at VNG Corporation.

In 2011, Tencent Holdings reported to its shareholders that it held a stake in an unlisted online game company in Southeast Asia with a ratio of 30.02% in 2010 and 31.25% in 2011. This report did not specifically identify VNG Corporation.

In the same year, VNG Corporation's consolidated financial statements also noted that Tencent Holdings Limited was a "major shareholder", but the specific ownership ratio was not disclosed.

It was not until its filing with the U.S. Securities and Exchange Commission (SEC) for a Nasdaq listing that VNG Limited clearly stated the real ownership ratios of Tencent as well as other foreign shareholders in the company.

Accordingly, Tencent Holdings is the largest foreign shareholder owning more than 65 million Class A shares, equivalent to 23% of voting rights. Tencent's ownership includes more than 43 million shares of Tenacious Bulldog Holdings Limited, 14.5 million shares of Prosperous Prince Enterprises Limited, and more than 7.5 million shares to be issued after completing the IPO.

Besides Tencent Holdings, VNG Limited's shareholders include GIC (11.1%) through Gamvest Pte. Ltd and Seletar Investments Pte Ltd (6.9%), and Ant Group (5.7%) – a unit once owned by world-renowned Jack Ma.

In addition, VNG Limited said that the company also plans to offer 5.6 million Class A ordinary shares in the IPO to KingSoft at the price of $1.4867 per share. The deal, worth $8.3 million, comes from an option contract signed by VNG Corporation - a subsidiary of VNG Limited - with Kingsoft - another Chinese game giant, in 2010.

In particular, few people pay attention to the shares at VNG Limited of co-founders Le Hong Minh and Vuong Quang Khai. Although they have 51% of voting rights, they do not have economic rights. Meanwhile, foreign investors, including the original foreign investors in VNG Corporation, own 49% of voting rights but up to 84.2% of economic rights in VNG Limited.

This detail shows the importance of Tencent and Kingsoft to VNG Limited.

Support from foreign shareholders

The close relationship between Tencent Holdings and Kingsoft with VNG Corporation is also shown through the corporation's business activities.

Thanks to its position as a leading game producer, VNG Corporation has brought to the Vietnamese market as well as other Southeast Asian countries famous games such as PUBG Mobile developed by Tencent Holdings and Swordman Online by Kingsoft.

Earlier this year, VNG Corporation acquired the rights to publish League of Legends - a MOBA (multiplayer online battle arena) game, from Garena, a global game developer and publisher under Singapore-based tech giant Sea Limited. League of Legends is a popular game in Vietnam as well as globally developed by Riot Games - a company within the ecosystem of Tencent Holdings.

Financial data shows that the game business contribute 80% and 81.7% of VNG's total revenue in 2022 and the first six months of 2023, respectively. This is also the only segment that VNG has reported continuous profits over the years.

Games released by strategic shareholders Tencent Holdings and Kingsoft in 2020, 2021 and 2022 contributed 30.6%, 40.7% and 29.4% to VNG Corporation’s revenue, respectively, while the figure for the first half of 2023 was 27%.

VNG Corporation paid royalties and licensing fees to Tencent Holdings with a total amount of VND545.4 billion ($22.44 million), VND691.4 billion ($28.45 million), VND634.4 billion ($26.1 million) and VND360.3 billion ($14.82 million) in 2020, 2021, 2022, and the first six months of 2023, respectively.

The companionship and support from Tencent Holdings, along with other foreign shareholders, has promoted VNG Corporation's growth and expansion in the domestic market as well as accelerated its global expansion plans.

Although the business results were not really positive, VNG Corporation's revenue continued to increase with a compound annual growth rate (CAGR) of 13.5% in the 2020-2022 period. For a tech "unicorn" like VNG Corporation, revenue growth is a more important factor than profit and loss, as it shows that the corporation is continuously expanding its business activities in the field it is pursuing.

In late 2022, Bloomberg quoted VNG Corporation co-founder Le Hong Minh as saying that the corporation is accelerating its international expansion. Games will be its spearhead, and VNG is also seeking to add global revenue from artificial intelligence (AI) and cloud computing products.

As for Tencent Holdings, some opinions see VNG Corporation as a stepping stone for this group in its ambitious plan to enter the potential Vietnamese and Southeast Asian markets.