Chinese companies increase shareholder returns

Chinese companies like Alibaba Group Holding ltd.

BABA -4.85%

embrace buyouts and spot dividends, returning cash to shareholders as they seek to shore up their battered stock prices and signaling confidence in the long-term outlook.

Dividend payouts and share buybacks could help support a market that has been rocked by a range of challenges, ranging from the economic impact of Beijing’s Covid-19 policies and sweeping crackdowns to concerns over US radiation and heightened geopolitical tensions.

JD.com Inc.

Last week, it announced it would pay a special cash dividend totaling approximately $2 billion to holders of its U.S. certificates of deposit and Hong Kong-listed shares, after raising the its existing $3 billion buyout program late last year. Meanwhile, offshore oil giant Cnooc ltd.

883 -1.09%

said on April 28 that it would pay a special anniversary dividend of HK$1.18 per share, the equivalent of about $0.15. This is a sizable gain for a company whose shares closed the same day at HK$10.84 per share.

Alibaba increased its buyback program by $10 billion to a maximum of $25 billion in March. Others introducing or expanding similar projects include smartphone maker Xiaomi Corp., fast-food giant Yum China Holdings Inc., automaker BYD Co.

and small tech companies such as Bilibili Inc.,

Vipshop Holdings ltd.

and Weibo Corp.

Valuations of Chinese stocks have fallen sharply against their international counterparts, with the price-earnings ratio of the MSCI China Index falling to just 67% of that of the MSCI ACWI World Index at the end of April, according to Refinitiv data. . Lower valuations tend to make buyouts more attractive.

On Friday, the MSCI China, which includes stocks listed in the United States, Hong Kong and onshore, had fallen about 40% in dollar terms over the past year, according to data from Refinitiv.

Returning cash to shareholders could also align with government priorities. China’s securities regulator has encouraged the use of buyouts and called on major shareholders of listed companies to increase their stakes when stocks crash to stabilize prices.

The calls were part of Beijing’s efforts to support a sluggish economy and lift market morale, said Rory Green, chief China economist at TS Lombard. “It’s a symptom of weakness in China, rather than a sign of positive buying,” he said.

Given the regulatory uncertainty, spending money on stocks is a relatively safe option for companies to show their willingness to work towards government goals, he added.

In addition, companies have less incentive to spend on expanding their businesses as shutdowns in China cause short-term labor and logistical disruptions, said Kinger Lau, chief China equity strategist at Goldman Sachs.

Buyouts are a relatively new tool for Chinese companies, especially onshore, where their use was strictly limited until 2018. Even in Hong Kong, buyout volumes are modest compared to those in the United States, although the volumes in the Asian city are increasing.

As of May 5, 128 companies had repurchased about $2.6 billion worth of shares in Hong Kong so far this year, more than double the total in the same period a year earlier, according to the Wind data. Wind’s numbers reflect actual redemptions, rather than potential program totals. For all of 2021, the figure was nearly $5 billion, a record for the market.

A major contributor to this year’s total is Tencent Holdings ltd.

, which has repurchased more than $800 million in stock, according to filings. Tencent did not specify a specific buyback target but has an open-ended mandate to buy back up to 10% of its shares.

Some expect the trend to accelerate further. Buyouts will become a bigger use of cash for Chinese companies, Goldman Sachs’ Lau said. He said they made economic sense, given low valuations, and were in line with government policy direction.

Write to Clarence Leong at [email protected]

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