JD.com-backed delivery platform Dada Nexus lines up for a US stock sale even as bitter aftertaste of Luckin Coffee’s scandal lingers

Dada Nexus, a Chinese crowdsourced on-demand delivery and retail platform backed by e-commerce giant JD.com, has filed for an initial public offering (IPO) in the United States according to a regulatory filing, shrugging off concerns about Chinese listings following recent accounting scandals at Luckin Coffee and two other Chinese companies.

The listing could raise about US$500 million, making it one of the biggest IPOs by a Chinese company this year, Bloomberg News reported, citing people familiar with the matter.

The IPO is scheduled for later this year on Nasdaq, with proceeds from the listing going toward investments in technology, research and development and to increase the user base of the unprofitable company, according to a term sheet seen by the South China Morning Post. Goldman Sachs, BofA Securities and Jefferies are serving as underwriters on the offering, according to a filing with the Securities and Exchange Commission.

Four years ago, JD merged its JD Daojia unit with Dada Nexus and provided US$200 million in cash to Dada Nexus, receiving about 47 per cent of the combined company’s equity. JD exercised a warrant to acquire additional shares in the company in 2017 and invested a further US$180 million in its preferred shares in 2018.

Dada Nexus, which is based in Shanghai, operates JD-Daojia, an on-demand retail platform, and Dada Now, a crowdsourced delivery platform, in China. The company’s first-quarter revenue more than doubled to 1.1 billion yuan (US$155 million), from 526.5 million yuan in the same period in 2019, according to the SEC filing. The company has not earned an annual profit since its founding in 2014, and reported a net loss of 2.46 billion yuan in 2019.

Services provided to JD accounted for 37.8 per cent of its revenue in the three months ended March 31, while services provided to Walmart’s stores in China accounted for 14.9 per cent of revenue in that period.

The filing by Dada Nexus comes nearly a week after Kingsoft Cloud, the cloud-storage subsidiary of one of China’s biggest computer software developers, debuted on Nasdaq following its US$510 million IPO. Shares of the Beijing-based unit of Kingsoft Corporation rose 43 per cent since their debut on May 8, closing on Tuesday in New York at US$24.35 a share.

Kingsoft Cloud’s listing and trading debut came at a time of heightened US-China tensions and scepticism about Chinese listings on Wall Street after the disclosure that employees at Luckin Coffee – a one-time investor darling often described as the Starbucks of China – had fabricated sales over three quarters in 2019.

On Tuesday, the Xiamen-based Luckin Coffee fired its chief executive Jenny Qian Zhiya and its chief operating officer Liu Jian over the accounting scandal which has erased more than US$2 billion of market value. Luckin Coffee had been one of the best performing Chinese IPOs since its debut in May 2019.

Rising tensions between the US and China over the coronavirus pandemic have raised questions about the appetite for Chinese companies in the US and whether more Chinese companies listed in the US would seek listings closer to home.

On Tuesday, US President Donald Trump ordered the federal government’s largest pension fund to not invest in Chinese companies. The Federal Retirement Thrift Investment Board was preparing to shift part of its holdings into an index that includes Chinese companies.

JD.com filed confidentially for a secondary listing in Hong Kong last month while NetEase hired bankers for its own Hong Kong listing, after Alibaba Group Holding pursued a US$12.9 billion offering in Hong Kong last year. Alibaba owns the South China Morning Post.

The positive debut of Kingsoft Cloud came as new Chinese listings have struggled in the US this year against the backdrop of the pandemic.

This year, 12 Chinese firms have listed in the US and all but two are trading below their offer prices, Bloomberg reported.

Of the 45 companies that have completed US IPOs since the beginning of 2019, just eight are above water, Bloomberg said. They have declined 11.6 per cent on average, weighted by deal size, whereas US listings in general have risen by an average 19 per cent.

Additional reporting by Bloomberg News