My question is what happened to existing Tencent shareholders at that time? Were they awarded 'free' China Literature shares?
They were not awarded free shares. The spin off was different. Tencent Held 100% of China Literature. It spun off China Literature as separate entity. Floated a IPO to raise fresh capital for China Literature. The existing share holder were offered a guaranteed allocation of 1 China Literature share for every 1256 shares of Tencent. They had to pay the same price as determined by IPO; around HKD 55.
Surely if no 'free' shares were awarded, the value of the stock they were holding (Tencent) would be lower as part of the business was no longer under Tencent post-spinoff.
Tencent still held around 50% stake in China Literature after the spin off and fresh equity infusion via IPO. Hence the existing shareholder did not loose due to spin off. Any gains / loss [in China Literature] will be reflected in Tencents books to the extent of the shares [around 50%] held.
I'm holding position in TCEHY ADR and Tencent is about to spin off Tencent Music, therefore I'm wondering what does it mean for my position.
This would depend on how the spin off will be done. It could mean additional cash distributed to ADR if a different mode of spin off is followed or it could be mean no change if the spin off is similar to China Literature.