JD to shake up finance biz

View of the stand of JD Finance of Chinese online retailer JD.com during an exhibition in Shanghai, Nov 4, 2016. [Photo/IC]

Industry analyst says that the spinoff may be a bid to replicate success of Alibaba's Ant Financial

China's second-largest e-commerce firm JD.com Inc announced it will reorganize its internet finance business JD Finance, to transform it into a company with only Chinese investors as shareholders, a move which doesn't rule out the possibility of seeking a listing on domestic stock exchange.

The Nasdaq-listed online retailer said it is exploring a possible reorganization of JD Finance, while releasing its third-quarter financial results on Tuesday night. It is currently contemplated that JD.com will dispose of all its equity stake in JD Finance so that JD.com will hold neither legal ownership nor effective control of JD Finance.

The reorganization is to make JD Finance a wholly Chinese-owned entity to facilitate its development in certain licensed financial service businesses in China and take advantage of the liquidity provided by the Chinese capital market, according to a statement by JD.com.

The statement also said JD.com's Chairman and CEO Richard Liu intends to participate in the transaction by acquiring a minority equity stake in JD Finance at the same market price as third-party investors.

The company also announced its net revenue reached 60.7 billion yuan ($8.9 billion) in Q3, an increase of 38 percent year-on-year.

Its total gross merchandise volume for the third quarter increased by 43 percent to 158.8 billion yuan, while operating cash flow was 6.6 billion yuan inflow, compared to 1.4 billion yuan outflow for the same period last year.

Liu said earlier this year that the company will create more than two listed companies in the next three to five years, apart from JD.com which is listed on the Nasdaq.

The move is similar to Ant Financial Services Group, the financial affiliate of e-commerce giant Alibaba Group Holding Ltd. It was split off from Alibaba and obtained business independence in 2014, making it a powerful financial player so far. It is seeking its initial public offering as soon as this year, according to media reports.

"The reorganization will benefit the all-around development of JD Finance's businesses as its current financial payment business is restricted by related laws and regulations," said Lu Zhenwang, an internet expert and chief executive of Wanqing Consultancy in Shanghai.

Lu added the independence of JD.com's financial arm will facilitate the company to finance, attract local investors and shareholders, and better carry out diversified financial businesses, in order to yield more profits and also make preparation for its future listing.

Li Chao, an analyst with iResearch Consulting Group, said it is an inevitable trend that JD Finance is split off from JD.com to expand its business, as we already have successful cases related to internet financial companies, such as Alibaba's Ant Financial.

JD Finance raised $1 billion in new funding in January. The investors included Sequoia Capital China, China Harvest Investments and China Taiping Insurance, and with the new financing, JD Finance is valued at $7 billion.

The business scope of JD Finance now covers supply chain finance, consumer finance, wealth management, crowd funding, insurance and security. The company is striving for financial service licenses as the country's middle class surges in size.