JD.com raises $1b on global bond market at lower cost

An advertisement for e-commerce retailer JD.com Inc in Shanghai. [Photo/China Daily]

China's second-largest e-commerce platform JD.com has made its global bond market debut, securing a relatively low borrowing cast when raising $1 billion in debt.

The company secured a Baa3 rating from Moody's and BBB- from Standard&Poor's, the lowest rating in the investment-grade category. The five-year $500 million tranche was sold at 3.125 percent and the 10-year $500 million tranche at 3.875 percent.

The investment-grade ratings to a loss-making company are due to expectation that its profitability, remaining weak at the moment, would improve in the upcoming months, due to its expanding product offering through direct sales and the marketplace, rating agencies said.

S&P noted that JD.com's market share in the online direct sales sector has climbed to 56.9 percent in terms of gross merchandise value, from 36.8 percent in 2011. The value of consumer electronics, which usually means low profitability, as a share of gross merchandise value has declined from 80 percent in 2011 to 51 percent in 2015.

However, a number of brokers argued that JD.com should be considered a high-yield credit because of its unprofitable status and the fact that it is more of a capital-intensive and hence inherently more volatile tech company.

JD.com said the sale was popular, as it was over-subscribed. It did not elaborate how the proceeds will be used, only saying they would be utilized for "general corporate purposes".

The joint bookrunners of the offering are Merrill Lynch Pierce, Fenner & Smith Incorporated and UBS AG Hong Kong Branch.

The offering came following rising unease in the onshore bond market as a few default cases pushed yields high. For JD.com, the debut offered another financing channel while reducing refinancing risks, analysts said.

"At the beginning of this year Chinese companies flocked to the onshore market for funding as the yuan depreciated. Now, we have seen more and more Chinese companies looking offshore to raise funds," said Lillian Chiou, director of S&P's Corporate Ratings.

"By tapping the offshore bond market, Chinese issuers could raise their exposure to global investors and improve their international visibility," Chiou added.