Source | Tiger International
Think of this "big factory selling big factory" incident as a collective stress test for Internet companies, if these companies have carried the pressure, it is likely that there will be a wave of very good opportunities to get on the bus.
Many Tencent Holdings (00700.HK) shareholders got up overnight and found that they were about to become shareholders of JD.com (09618.HK), which was another big surprise at the end of the year.
Indeed, this kind of distribution in-kind method, which is divided into other companies' stocks, is indeed uncommon on the mainland and Hong Kong exchanges.
Details about stock dividends
Tencent's qualified shareholders will receive a physical distribution in proportion to 1 share of JD.com's Class A shares for every 21 shares of Tencent shares.
The shares of JD Group's Hong Kong stocks are 1 share of Class A common stock, while the ADR of JD U.S. stocks is equivalent to 2 shares of Class A common stocks. Non-qualified shareholders will receive cash in this proportion.
Please note: As for "qualified shareholders" and "non-qualified shareholders", they have been stated in Tencent's announcement. Shareholders in most regions are qualified shareholders, including shareholders from Hong Kong, mainland Hong Kong Stock Connect, Macau, Australia, Southeast Asia and other countries, who will directly obtain shares of JD Group.
Tencent shareholders of the Hong Kong Stock Connect can also be issued JD shares and can sell them, but because Jingdong Group is not yet the target of the Hong Kong Stock Connect, it cannot be bought at present.
Non-qualified shareholders are primarily U.S. investors who will receive cash directly because of different rules under different regulatory jurisdictions.
Tencent will sell these JD shares through the secondary market, or its own cash transfer (and ultimately the corresponding JD stock will be sold).
Therefore, from the perspective of the stock price of the secondary market, if the proportion of US investment holding Tencent is high, then Tencent will have to sell a large number of JD.com shares in the secondary market to form a certain selling pressure.
Since Tencent Group does not directly hold JD.com's ADR in the U.S. market, it will sell in the Hong Kong market. Therefore, there may also be certain arbitrage opportunities between JD.com's Hong Kong stocks and US stock ADR.
The specific dividend schedule is as follows: ex-net date: January 20, 2022, share record date: January 21, 2022, closing date: January 24, 2022 to January 25, 2022, dividend payment date: March 25, 2022.
This means that a large number of investors will get JD.com's shares on March 25.
About ex-rights and options trading
All dividends must be removed, otherwise the company's market value will not be uniform, and the corresponding rights of shareholders will not be unified.
The ex-rights, if according to the price of Jingdong 258 Hong Kong dollars, is equivalent to the price of 12.28 Hong Kong dollars to be deducted by Tencent on the elimination date, corresponding to the price of 461 Hong Kong dollars, which is a one-time dividend of 2.66%.
It doesn't make much difference for investors who hold genuine stocks, but after two months, there will be more JD.com shares in their accounts. For option holders, there will be some changes.
Generally speaking, there are two corresponding ways to deal with the right to remove the right that is too large.
First, the exchange directly replaces the old option with a new strike price option (you can also add a new exercise price option at the same time), that is, the exercise price of the old option before the ex-option amount is subtracted from the corresponding ex-option price.
For example, if on 19 January 2022, Tencent's forward put with an exercise price of HK$480 and an ex-rights amount of HK$12 will become a put (480-12) with an exercise price of HK$468 on 20 January.
Second, the exercise price remains unchanged, but the market price of the corresponding option changes, reflecting the ex-rights. If the strike price does not subtract the amount of the right, the price of the option itself will reflect a corresponding change in the price before and after the ex-option date to take into account the ex-option factor.
For example, on January 19, 2022, Tencent's closing price is HK$480.
If the closing price of put and call of the HK$480 exercise price of Tencent's March option are HK$20 each, and if the ex-option amount is HK$12, it will be on January 20.
The price of the previous closing day corresponding to this put automatically rises from HK$20 to HK$32 (20+12), and the price of the previous closing day corresponding to the call automatically decreases from HK$20 to HK$8 (20-12).
However, in fact, since the market already knows that there will be an impact of the "ex-rights" event, the corresponding call and put prices will change many trading days ago. The price of the call will continue to be lowered, the price of put will continue to rise, and the price will grow (and decrease) gradually over time.
Of course, since the trading volume of the option may not be comparable to the main stock, there may be more arbitrage opportunities in the process of the change of the option price, but pay attention to the liquidity of the option.
The benefits of Tencent's in-kind dividends
Tencent's operation is "silky and flowing", which brings many benefits.
First of all, through in-kind dividends, for Tencent itself, it can save the company tax brought about by the realization of investment income.
Tencent's corporate tax rate in recent years has generally been 18-20%. At a rate of 20% and JD.com's share price of HK$258, Tencent's move could save HK$23.6 billion in taxes and fees, which is equivalent to increasing after-tax income. Further, it will "stealthily" reduce the company's price-to-earnings ratio.
Second, for shareholders, dividend tax that should have been paid in cash can also be eliminated.
At the same time, shareholders also have autonomy in the treatment of the company's assets. After getting JD.com shares, whether to sell them is purely up to the shareholders themselves.
In other words, companies like Tencent hold ownership of JD.com, 03690.HK, and Pinduoduo (PDD. US) Tencent Music (TME. US) and many other companies that have already been listed are themselves a secondary market "super investor" and an "asset portfolio" that includes many Chinese stocks.
Instead of holding Tencent and passively holding a number of Chinese stocks that almost saw the ghost this year, it is better to return the option to the shareholders themselves.
Tencent explained in the announcement that "when the invested enterprise has the ability to continuously self-raise funds, it chooses to exit the investment and share the benefits with shareholders under appropriate circumstances", but it does not change the strategy of "long-term investment".
Based on this starting point, Tencent may reduce its holdings in other Chinese stocks in the future, but this will not change Tencent's strategic partnership with them.
So, the thing itself is very cleverly done.
With regard to the impact of the financial statements
Tencent has many associated companies, so the profit and loss of the associated companies reported in each financial report also has a significant impact on its profits.
Some professional investors will consider the investment profit and loss separately when calculating Tencent's valuation, but most investors directly focus on the overall profit and corresponding indicators (price-earnings ratio, etc.).
Therefore, Tencent's associated company profit and loss is important, and JD.com's income statement is an important part of it.
Tencent's shareholding ratio does not yet support a complete merger, so in principle, jd.com's after-tax profits in the current period except for minority shareholders, Tencent should only include JD.com's profits in its income statement according to the proportion of shareholding.
However, if you simply record the current period, there will be a problem: if Tencent issues the current financial report earlier than JD.com, Tencent may leak the information of JD.com's financial report.
As a result, Tencent will defer the recording of the profit and loss of the associated company for one quarter. That is to say, the profit and loss of Tencent's associates in the Q3 quarter of 2021 that just passed actually included the profit of JD.com in the Q2 quarter of 2021.
It can be seen that because the net profit situation of JD.com 21Q3 is very unsatisfactory, it will put pressure on the profit and loss of Tencent Q4's associated companies, but such pressure will not be in the future.
Because according to this announcement, after the dividend, the proportion of JD.com shares held by Tencent will be as low as 2.3%.
Under the IFRS accounting standards that both companies follow, JD.com's stake will become Tencent's Financial Assets, rather than the previous Associates.
Therefore, as long as the current period is not realized, the change in the fair value of JD.com's shares will only affect Tencent's balance sheet, not the income statement.
If Tencent sells other affiliates, it is the same process. Tencent's future income statement will be closer to Tencent's own operating facts.
Impact on the business ecosystem
When Tencent invested in JD.com, there must have been some reasons for fighting against Alibaba's (BABA.US) e-commerce business. Under the current anti-monopoly trend in the Internet field, it no longer supports the respective monopolies between large companies and "rules the river".
Taking the initiative to weaken the support for some concubine companies can be said to be a very proactive attitude of goodwill.
This "dividend + spin-off" approach also highlights Tencent's excellence in corporate governance (ESG plus points). Sharing growth dividends with listed companies is one of the demands of shareholders.
Some investors will think that this has also opened up the possibility of deeper interconnection between Tencent and Ali to a certain extent. In the future, Taobao access to WeChat Pay and WeChat access to Taobao links are high probability things.
Alibaba is also currently devastated by changes in various ecological chains, and even the core e-commerce business has been shaken. There are even investors who are thinking, in the situation of Tencent, Ali, and Byte, the three giants are fighting against each other, will Ali and Tencent get closer under the strong ecology of short videos?
It can only be said that taking history as a mirror, the division and integration of the shopping mall cannot escape the law of history.
For Tencent, what is more important at the moment is to find another "JD.com" in the growth stage.
