A spokesperson for Shenzhen-based internet company Tencent's (0700.HK) payment subsidiary, Tenpay, today denied rumors that Tenpay's payment license had been revoked by the Shenzhen branch of the People's Bank of China, saying that all such reports were "false and entirely unfounded." The PBoC has made no indication of any such move, the spokesperson said, adding that Tenpay had been entirely domestically held since 2006. The spokesperson also added that Tenpay never operated on a variable interest entity (VIE) based model, and that the company didn't know how rumors arose that Tenpay did use a VIE structure.
Chinese internet industry insider Fang Xingdong said on his personal microblog account that he had heard from reliable sources that Tenpay's license had been revoked by the Shenzhen branch of the PBoC, and that the PBoC had ordered Tencent to restructure to eliminate VIE relationships within six months' time.
Southern Weekend reported that Tenpay's shareholders were the domestic Shenzhen Shiji Kaixuan Technology and Shenzhen Tencent Computer Systems, while the prospectus for the overseas-listed Tencent Holdings (0700.HK) indicates that a variable interest relationship exists or did exist between itself and the former two companies.
"Variable interest entity" refers to an overseas or offshore company indirectly acquiring a domestic operating entity by establishing a wholly foreign-owned enterprise within China to provide consulting or management services to domestic entities on a monopolistic basis; all profits realized by the domestic entity will be paid to the foreign enterprise as "service fees;" meanwhile, the WFOE will acquire through a contractual agreement the right of first refusal to the domestic entity's stock, the right to mortgage holdings on the entity's assets, and voting and operations rights. The model was created for Chinese internet company Sina's (Nasdaq: SINA) overseas listing on the Nasdaq Stock Market, later becoming widely used in industries from which foreign entities are prohibited, such as the internet and publishing sectors.
Editor's Note: For more information on this topic, please see "Rumor: China's Third-Party Payment Firms Cut Overseas Ties," MD 5/13/11 issue.
Keywords: e-payment regulation online payment mobile payment Fang Xingdong Internet overseas listing Tenpay Shiji Kaixuan Tencent People's Bank of China third-party payment 0700.HK Tencent Computer IPO