China’s JD.com spins off VC-backed financial unit
Chinese online retailer JD.com has agreed to sell its entire 68.6% stake in its financial unit JD Finance, which is backed by Chinese investors including Sequoia Capital China, for RMB14.3 billion ($2.1 billion) in cash.
JD.com didn’t disclose the buyers or investors in the unit. JD Finance offers payment services and financial services such as small loans and wealth management to small merchants and consumers, much like the service offering of its rival, Alibaba Group’s Ant Financial.
As part of the spin-out, JD.com will take 40% of JD Finance’s pre-tax profits once the business has achieved positive pre-tax income. However, the online retailer could swap that profit sharing right into 40% stake in JD Finance, according to a statement. Richard Liu, JD.com’s chairman and CEO, will acquire a 4.3% stake of JD Finance as part of the divestment. Liu will also retain a majority voting right in JD Finance.
The unit raised RMB6.65 billion in January last year from investors including Sequoia Capital China and China Taiping Insurance, at a valuation of RMB46.65 billion. It previously invested in Meili Jinrong, a peer-to-peer (P2P) online lending platform that focuses on consumer finance, and Microseer, a Shanghai-based human resources and IT outsourcing services start-up.
JD.com’s revenue rose 44% year-on-year to RMB260.2 billion in 2016, on the back of its strong direct sales business. It posted a net loss of RMB3.47 billion, down from RMB9.38 million in 2015. JD Finance generated a net cash outflow of RMB39.8 billion in 2016 and received a net cash inflow of RMB42.3 billion.
JD Finance will be wholly owned by Chinese investors upon completing of the transaction, allowing it to expand its operations into certain licensed financial-services businesses in mainland China, JD.com CFO Sidney Huang told The Wall Street Journal. The firm is targeting a public listing in China. Ant Financial is also said to be targeting a domestic IPO, having closed a $4.5 billion Series B round in April 2016.
The spin-out of JD Finance will be completed by the middle of 2017. China Renaissance acted as the financial advisor to JD.com.
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