China, Saudi Arabia eye Korean game companies

[Photo by Han Joo-hyung]

Saudi Arabia and China, who are emerging as major players in the global gaming market, are increasing their influence by consecutively injecting their capital into South Korean game companies with high intellectual property (IP) value and excellent development capabilities.

According to sources from the Korean gaming industry on Tuesday, Tencent Holdings Ltd., a Chinese multinational technology and entertainment conglomerate, recently increased its stake in SHIFT UP Corporation, a Korean game company, to 24 percent.

SHIFT UP became a unicorn thanks to its globally popular game “Goddess of Victory: Nikke” and is a privately held startup company valued at over $1 billion. SHIFT UP does not disclose its ownership and shareholder composition as an unlisted company, but Tencent is believed to be the second-largest shareholder after founder and Chief Executive Officer Kim Hyung-tae. With Tencent’s additional share acquisition in November 2023, SHIFT UP’s market valuation is estimated to hit 2 trillion won ($1.52 billion).

Tencent is actively supporting SHIFT UP as a publishing partner, handling Nikke’s distribution and publishing both at home and abroad. The Korean game company seems to be preparing for Nikke’s entry into the Chinese market. “We understand that Tencent has recognized SHIFT UP’s in-house IP development capabilities in the rapidly changing gaming industry,” an industry insider familiar with SHIFT UP’s internal affairs said.

Tencent, which was once a relatively small company in the gaming sector, has a history of boosting its gaming business by publishing IPs from Korean gaming companies, including two of the longest-running IPs in the Korean game industry, Smilegate’s “Crossfire” (2007) and Nexon Co.’s “Dungeon & Fighter” (2008).

Having recognized the development capabilities of Korean game companies, Tencent continues its aggressive investment strategy., Tencent holds a 17.52 percent stake in Netmarble Corp. via its subsidiary Han River Investment, making it the third-largest shareholder. The Chinese gaming giant also secured a 13.73 percent stake in Krafton Inc. through its subsidiary Image Frame Investment, becoming the second-largest shareholder.

Tencent’s strategy involves acquiring or buying stakes in game developers to increase revenue in its game sector and reinvesting the profits. There are cases where Tencent buys promising game companies to target profits after they go public. Tencent acquired Riot Games, Inc., the developer of “League of Legends,” in 2015 and invested approximately $8.6 billion in acquiring Supercell Oy, the developer of “Clash of Clans,” the year after. Tencent is also known to hold a 40 percent stake in Epic Games, Inc.

For its part, Saudi Arabia has also been active in investing in the gaming sector via its sovereign wealth fund, the Public Investment Fund (PIF). The kingdom has acquired stakes in globally renowned gaming companies including Nintendo Co., Electronic Arts Inc. (EA), Capcom Co., and Take-Two Interactive Software, Inc.

Saudi Arabia has also continued to show interest in Korean game companies. The PIF has been steadily acquiring stakes in Nexon, which is listed on the Tokyo Stock Exchange in Japan and is the second-largest shareholder in Nexon Japan with a 10.23 percent stake. The industry estimates that PIF has spent a total of 266.13 billion yen ($1.81 billion) to acquire its stake in Nexon Japan. There are various reports about the PIF increasing its stake in Nexon Japan without separate consultation with Nexon in the form of an over-the-counter purchase. Although the PIF said through its representative last year that it was for “simple investment purposes,” some analysts suggest that the move goes beyond simple financial investment to potentially involve participating in management.

The PIF also bought shares in NCSoft Corp. on the stock market over a two-month period beginning in February 2022, investing approximately 1.09 trillion won to acquire a 9.3 percent stake and becoming the second-largest shareholder.

Saudi Crown Prince Mohammed bin Salman Al Saud plans to invest about $37 billion in the gaming industry through the PIF and other channels, with $13 billion of the $37.8 billion to be spent on large-scale mergers and acquisitions of gaming companies.

Against this backdrop, the Korean government began selling a 29.30 percent stake, or 852,000 shares, in Nexon’s holding company NXC Corp. All eyes are now on China and Saudi Arabia’s next move after the sale of the shares, which the government received as an inheritance tax from the family of Kim Jung-ju, the late founder of Nexon.