On December 23, Tencent Holdings (00700.HK) announced that it plans to distribute its 457 million Jingdong Group-SW (09618.HK) shares as interim dividends to shareholders. After the distribution is completed, Tencent’s share of JD’s shares will fall from 17% to 2.3%, and Liu Chiping, president of Tencent Holdings, will also step down as a director of JD.com.
On the morning of December 23, Tencent rose by about 5%; Jingdong Group rebounded after a sharp drop of 10%, and closed at 259.6 Hong Kong dollars on the 23rd. The market value of the 457 million shares of Jingdong Group that were reduced this time exceeded HK$110 billion.
Tencent said: “When the invested company has the ability to continue to raise funds by itself, it will choose to withdraw from the investment under appropriate circumstances and share the proceeds with shareholders.”
A senior market person told CBN reporters that some shareholders who hold shares of Tencent may not be willing to hold shares in JD.com. After the stocks are received, JD.com will have certain selling pressure, which has also been reflected in the stock price in advance. In the future, Tencent will hold other shares. The company may also have a similar approach; on the other hand, JD.com is currently not on the Southbound Stock Connect list. If there is no change in the regulatory policy before the distribution, it is expected that mainland investors holding JD.com may receive cash directly or receive JD. Shares “can only be sold but not bought.”
Industry insiders believe that under the background of the anti-monopoly policy, after Tencent “should” JD.com, it will soon be the turn of Meituan, Pinduoduo and Kuaishou. The Tencent Group, which is “slimming” its investment territory, will also face a new round of research and judgment on its main business in the secondary market.
Tencent distributes HK$110 billion in JD physical stock to shareholders
On March 10, 2014, Tencent and JD.com jointly announced that Tencent would become an important shareholder of JD.com by taking a 15% stake in JD.com. Tencent purchased 352 million ordinary shares from JD.com, which accounted for 15% of the latter’s pre-IPO ordinary shares. The assets of the two parties will be integrated, and Tencent will pay US$214 million in cash. Before JD.com went public in the United States, Tencent also continued to increase its holdings of about 5% of the shares at that time. This time, the 457 million shares sold by Tencent have a market value of approximately US$15 billion (up to 100 billion Hong Kong dollars), and Tencent’s holdings are obviously very profitable.
A Hong Kong stocks fund manager in Shenzhen told a reporter from China Business News that in addition to the platform, JD.com has completed its self-built logistics, customer service, retail, and after-sales links. In fact, it is more likely to become the Chinese version of the “Amazon” Internet. Platform, it is expected that Tencent’s reduction of holdings will not affect JD’s long-term investment value, but it will take some time to digest the short-term negative.
At present, JD.com is not on the Southbound Stock Connect list. For mainland shareholders, there may be certain technical obstacles in future stock distribution. However, some market participants believe that after Tencent sells on its behalf, it is a more likely choice to distribute cash to domestic shareholders.
Broad Capital’s non-executive chairman Wen Tianna told CBN reporters that mainland investors who hold shares in Tencent through Southbound Stock Connect are expected to have several possible solutions in the future: First, mainland shareholders will not be issued JD shares and Tencent will be on their behalf. The shares are sold in the market, and cash is distributed to mainland shareholders; the second is that other institutions will hold it on behalf of the company, and trading is temporarily prohibited until it is included in the southbound trading; the third is to wait for JD to be included in the southbound trading before implementing the plan.
The above-mentioned Hong Kong stock fund manager told China Business News that domestic investment institutions can only buy JD.com if they have QDII channels. If the Hong Kong Stock Connect channel is still not opened before the physical stock distribution, it is possible for the mainland to hold Tencent’s funds. In a situation where you can only sell but not buy, it is also possible to distribute cash directly to mainland shareholders. If the cash is divided directly, it is also questionable to whom these mainland shareholders’ shares are sold. This also depends on the specific regulatory policies and Tencent’s own choices.
Lin Jiayi, CEO of Xuanjia Financial, believes that this time Tencent will deal with JD stocks in accordance with the dividend method. Since JD is not on the Southbound Stock Connect list, whether mainland shareholders of Hong Kong Stock Connect Tencent will obtain JD stocks and the trading method is expected to be different from overseas direct holding methods. Only when the corresponding rules are released, it is very likely that the users of Southbound Stock Connect will only have the right to sell, but not the right to buy, which means that they either hold or sell, or directly distribute dividends based on cash of equivalent value.
At present, JD’s domestic funds are mainly held through QDII channels. A few actively managed funds that have changed their investment contracts directly hold JD’s shares. Among them, the E Fund High Quality Select Hybrid Securities Investment Fund (110011) third quarter report for 2021 managed by star fund manager Zhang Kun shows that it holds 470,000 shares of Jingdong Group, accounting for 5.12% of the fund’s net asset value, which is mainly bought after changing the contract; Tencent Holdings 528,500 shares, accounting for 9.38% of the net asset value.
Tencent shrinks investment territory attracting attention
At present, Tencent still holds shares in a number of overseas listed companies such as Meituan-W (03690.HK), Pinduoduo (PDD), Bilibili-SW (09626.HK) and Tesla (TSLA). Tencent also invests in floating shares. The surplus is richer.
Whether Tencent will honor the earnings of these stocks in the future has also triggered certain speculation in the market. In this regard, Lin Jiayi told a reporter from China Business News that at present, Tencent still holds shares in the above-mentioned companies, and these companies are also in line with Tencent’s external interpretation of the reduction of JD’s standards-companies have their own financing and development capabilities.
Many industry professionals who are concerned about the capital market of Hong Kong stocks told CBN reporters that the fundamental reason behind Tencent’s dividend reduction of JD stocks is based on the impact of anti-monopoly policies. Wang Chao, the founder of Wenyuan Think Tank, told China Business News that Tencent’s holding of JD’s stock has not changed significantly for eight years.
Buffett’s Berkshire Hathaway used this model to distribute Apple shares to shareholders. Wang Chao believes that this move is a better governance model, reflecting respect for shareholders and achieving the effect of reducing holdings. In addition, to make profits by selling stocks, U.S. citizens and U.S. companies need to pay capital gains tax, but this part of the cost can be reduced if the stocks are distributed directly, and there is no need to pay part of the tax if they are held for a long time.
The Tiger International Investment Research team told a reporter from China Business News that in-kind dividends can reduce corporate tax financially, and for shareholders, it can also reduce the dividend tax on cash dividends. More importantly, the distribution of assets to shareholders, especially the distribution of listed company assets to shareholders, is also a manifestation of shareholders’ autonomy over company assets. Generally speaking, shareholders like to hear and hear.
JD is an important player in Tencent’s investment landscape, especially in the e-commerce industry. In Tencent’s investment map, JD.com first chose JD.com. According to many industry professionals, one is because Tencent has held JD.com for eight years, and the other is that in the secondary market, JD.com’s share price is relatively stable, falling from US$106.58 to the current 73.75. Dollar. And Pinduoduo fell from 211.6 US dollars to the current 58.44 US dollars; Meituan fell from 454.6 Hong Kong dollars to the current 222.4 Hong Kong dollars; Kuaishou plunged from the highest price of 417.8 Hong Kong dollars to the current 76.9 Hong Kong dollars.
The Tiger International Investment Research team believes that JD.com is currently stronger than other Chinese concept stocks in terms of fundamentals and stock prices. It not only helps solve Tencent’s investment exit, but also allows Tencent’s shareholders to share the dividend. While maintaining the strategic cooperation with JD.com, you can also have more energy to focus on other growing companies.
In addition to JD.com, Tencent is still withdrawing from Zhihu. On the morning of December 23, the latest shareholding information of Tianyan Check showed that Zhihu related company Beijing Zhizhe Tianxia Technology Co., Ltd. had business changes, Beijing Sogou Information Service Co., Ltd., Tencent related company Shenzhen Litong Industrial Investment Fund Co., Ltd., Bai Jie, Huang Jixin and other companies and natural persons withdrew from the ranks of shareholders.
A Hong Kong stocks analyst told a reporter from China Business News that he is pessimistic about the impact of this reduction on Tencent. On the one hand, due to policy and other factors, Tencent’s investment model is still not recognized by the outside world, so choose some The more acceptable ways to slim down, such as the substantial increase in the dividend rate this time, is to “distribute sugar” in a disguised form to appease shareholders; secondly, once Tencent starts the slimming investment landscape, where will Tencent’s huge cash reserves go? Will it have a positive or negative impact on Tencent’s valuation? These all need time to verify.
Wang Chao said that Tencent will focus more on its main business after its investment footprint is reduced. How will the market value of Tencent be affected in the future? He said that it is optimistic in the short term, but there are uncertainties in the long term, and it needs to be judged based on the main business. Return to Sohu to see more
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