Chinese Companies Boost Returns to Shareholders

JD.com Inc. last week said it would pay a special cash dividend totaling about $2 billion to holders of its American depositary receipts and its Hong Kong-listed shares, after late last year boosting its existing buyback program to $3 billion. Meanwhile, the offshore oil giant Cnooc Ltd. 883 -1.09% said on April 28 it would pay an anniversary special dividend of 1.18 Hong Kong dollars per share, or the equivalent of about $0.15. That is a sizable payout for a company whose stock closed the same day at HK$10.84 per share.

Alibaba boosted its buyback program by $10 billion to a maximum of $25 billion in March. Others introducing or expanding similar plans include smartphone maker Xiaomi Corp., fast-food giant Yum China Holdings Inc., car maker BYD Co. and smaller technology companies such as Bilibili Inc., Vipshop Holdings Ltd. and Weibo Corp.

Chinese stock valuations have fallen sharply compared with international peers, with the price-to-earnings ratio of the MSCI China index dropping to just 67% that of the global MSCI ACWI index as of the end of April, data from Refinitiv shows. Lower valuations tend to make buybacks more appealing.

As of Friday, the MSCI China, which includes shares listed in the U.S., Hong Kong and onshore, had fallen about 40% in dollar terms over the past year, Refinitiv data show.

Handing cash to shareholders could also dovetail with government priorities. China’s securities regulator has encouraged the use of buybacks and called on major shareholders in listed companies to increase their stakes when shares slump to stabilize prices.

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

Given regulatory uncertainty, spending cash on stocks is a relatively safe option for companies that lets them show their willingness to work toward government targets, he added.

In addition, companies have less incentive to spend on business expansion as China’s lockdowns cause short-term logistical and labor disruptions, said Kinger Lau, the chief China equity strategist at Goldman Sachs.

Buybacks are a relatively new tool for Chinese companies, especially onshore, where their use was tightly restricted until 2018. Even in Hong Kong, buyback volumes are modest compared with those in the U.S., although the volumes in the Asian city are increasing.

As of May 5, 128 companies had bought back the equivalent of about $2.6 billion of stock in Hong Kong so far this year, more than double the tally in the same period a year earlier, Wind data show. The Wind figures reflect actual repurchases, 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 bought back more than $800 million worth of shares, filings show. Tencent hasn’t detailed any particular repurchase target but has an open-ended mandate permitting the buyback of up to 10% of its stock.

Some expect the trend to gain yet more momentum. Buybacks will become a more important use of cash for Chinese companies, said Mr. Lau at Goldman Sachs. He said they made sense economically, given low valuations, and were in sync with the government’s policy direction.

Write to Clarence Leong at [email protected]