Tencent is distributing JD.com shares (HK-listed version) as dividends. Shareholders will get 1 JD.com share for every 21 Tencent shares held. But if your holding is not in a multiple of 21 shares, you will be receiving cash instead, no fractional shares will be distributed.
Given this ratio and the JD.com share price of HK$279.20 and Tencent’s share price of HK$443, the dividend yield is about 3%.
Overseas shareholders will likely get the shares because Tencent shares are held in custody by the brokers. The brokers will be given the shares and in turn credit them into the clients’ accounts. If you don’t want to hold the JD.com shares, you can sell them for cash.
How would they handle odd lots? Different brokers may have different practices, it is best to check with your broker if you’re a Tencent shareholder.
The Ex-Dividend date has been set on 20 Jan 2022. You’ll have to hold your Tencent shares until that date to qualify.
The JD.com shares are fungible between the US and HK versions. But due to US securities law, you are not permitted to offer, sell, pledge or otherwise transfer JD.com shares within the US or to US Persons during the first 40 days of the distribution.
If you are in China and use the south-bound stock connect to access HK-listed shares, you can hold or sell JD.com shares but not buy them. I believe most will hold it because it is not possible for PRC investors to buy. What is hard to get is more coveted.
Tencent explains that this move was done to exit investments where the investees have become consistently capable of self-financing their future initiatives. Tencent believes that JD.com has now reached such a status.
If this is the case, given the large venture portfolio of Tencent’s, shareholders might continue to receive dividend in specie for other companies.
Based on Tencent’s rationale, I would expect shareholders to receive shares in Tesla, Meituan, Sea, Pinduoduo, Kuaishou and Tencent Music in future since these investment value are sizeable and these companies are big enough to fend for themselves.
This means that Tencent shareholders might not need to wait for Tencent share price to recover.
Instead, your net worth is likely to increase via such dividend in specie if it continues. This is a value unlocking event by itself because Tencent’s investment portfolio has not been adequately valued by the market.
