JD to offload 69% holding in its finance unit for $2 billion

Logo of JD Finance is seen at a prmotion event in Nanjing, Jiangsu province, Aug 13, 2016. [Photo/VCG]

Nasdaq-listed JD, a Chinese online marketplace, said it has agreed to sell its 68.6 percent stake in its finance unit, JD Finance, for 14.3 billion yuan ($2.07 billion) in cash by the middle of this year, which is expected to pave the way for the latter's listing eventually.

JD did not identify the buyer. Nor did it indicate how it intends to deploy the proceeds.

JD Finance is valued at about $7 billion, suggesting the 68.6 percent stake to be offloaded by JD may have been worth $4.8 billion by current market estimates.

In a statement late on Thursday, JD did not elaborate on this aspect of the deal. It did say, however, that it would receive 40 percent of any pretax profit of JD Finance that the latter may post on a cumulative basis in future.

Post-deal, JD will hold neither legal ownership nor effective control of JD Finance. JD did not specify JD Finance's minority shareholders－it is not clear who holds the remaining 31.4 stake.

In January last year, JD Finance raised 6.65 billion yuan from investors such as Sequoia Capital China, China Harvest Investments and China Taiping Insurance.

In his individual capacity, Liu Qiangdong, JD's chairman and CEO, will pick up about 4.3 percent stake in JD Finance at a price that third-party investors would pay.

"JD.com hopes to spin off its financial arm into an independent company. The move will bring about the all-round development of JD Finance's businesses," said Lu Zhenwang, an internet expert and chief executive of Wanqing Consultancy in Shanghai.

Lu said JD Finance as an independent firm would be able to raise finance, attract domestic investors, carry out diversified financial business, and generate higher profits, which could pave the way for its listing.

For the year 2016, JD reported a net profit of 1 billion yuan on a non-Generally Accepted Accounting Principles basis.

This represents a turnaround from 2015 when the company incurred a loss of 1.6 billion yuan.

Full-year revenue was 260.2 billion yuan, up 44 percent year-on-year.

Revenue for the fourth quarter was 80.3 billion yuan, up 47 percent year-on-year, with services and others, mainly JD's e-commerce, contributing 7.4 billion yuan, up 58 percent.

The profit margin was 0.4 percent in 2016 compared to a negative margin of 0.9 percent in 2015, the company said. Gross merchandise volume in 2016 was 658.2 billion yuan, up 47 percent year-on-year.

Li Chengdong, an independent e-commerce strategy analyst, said JD has entered a stage of large-scale profitability.

The earlier investment in a self-built logistics system is paying good dividends, he said.