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The headquarters of Chinese e-commerce company JD.com on June 20, 2020/ Photo: Kyodo

Exclusive | JD.com may withdraw fintech unit’s stock sale in Shanghai’s Star Market after restructuring at JD Technology, sources say

  • JD.com’s fintech unit, known as JD Finance until 2018, was renamed JD Digits, and then renamed JD Technology in January
  • The unit absorbed JD.com’s artificial intelligence and cloud computing businesses in its latest restructuring
JD.com
JD Technology, the fintech unit of one of China’s largest online shopping platforms, is likely to withdraw its initial public offering (IPO) from Shanghai’s Star Market, amid changing business circumstances after the halt of Ant Group’s stock sale last November, according to sources. The company, renamed from JD Digits since absorbing JD.com’s businesses in artificial intelligence and cloud computing in January, may resubmit a listing application in future, according to two sources briefed about ongoing discussions who declined to be named.

The company feels it’s appropriate to withdraw the IPO plan because its name, its business and its senior management team have all changed since the initial listing plan was first filed, said one source who is involved in the listing discussions.

Any postponement in the listing of JD Technology, 36.8 per cent owned by JD.com, would not be a heavy blow to the e-commerce company, as investors are convinced of the company’s business prospects and are unlikely to force the parent into a buy-out, another source said. Executives of JD.com and JD Technology in Beijing did not respond to requests for comment.
Workers sort out packages for delivery at JD.com's Yizhuang Smart Delivery Station in Beijing on November 11, 2020. Photo: Simon Song

The IPO application by JD Technology is sitting in abeyance. The Shanghai Stock Exchange (SSE) and the China Securities Regulatory Commission (CSRC) have neither given their approval, nor rejected the application. Spokespeople at the bourse operator and the securities regulator could not be reached to comment.

The fintech unit changed its name at least twice in the last three years. Known as JD Finance until 2018, the unit filed to raise an estimated 20 billion yuan (US$3.1 billion) last September on the Star Market. That was two months before China’s financial regulators published a raft of new rules to rein in the growth of fintech, particularly in small online loans to consumers and small businesses.

JD.com’s fintech unit, spun off in 2013, earned 43 per cent of last year’s first-half revenue from online consumer loans and cash loan services Baitiao and Jintiao, a growth of 5 percentage points from 38 per cent for the whole of 2019. according to JD Digits’ listing prospectus.

The last time the company made any disclosure concerning its IPO was on October 12, when it provided answers to the SSE’s queries in a 261-page document.

Three weeks later, Chinese regulators halted the dual listing of Ant Group in Shanghai and Hong Kong, which was seeking to raise US$39.67 billion in what would have been the largest capital raising in global financial history, 48 hours before shares were due to begin trading. Ant Group is an affiliate of this newspaper’s owner Alibaba Group Holding.
Regulators have since published a slew of new regulations to ring-fence the financial services offered by internet platforms and technology companies, significantly changing the business environment for Ant Group, JD Technology and other fintech companies.
A new rule requires online lenders to fund at least 30 per cent of any loan they extend with banks. They must also put up 5 billion yuan in registered capital to offer online loans across provincial borders. The size of the loans are capped at 300,000 yuan for individuals, or one third of their average annual income for the last three years, whichever is lower.

The combination of the rules could either affect the profitability of JD.com’s fintech business, or require the company to scale down, or else pony up more capital to support its ambitions.

“Unless financial service is no longer the main business of JD Technology, it has to restructure to comply with the regulation for microlending, just like Ant Group,” said Zhao Zhidong, a partner at DeHeng Law Shanghai Offices.

JD Technology put its business transformation into overdrive, promoting JD.com’s chief compliance officer Li Yayun to the fintech unit’s chief executive, replacing Chen Shengqiang. Li, JD.com’s Communist Party secretary, had never been in charge of a business unit before at the group.

It’s not all bad news for JD Technology. The Star Market, launched under an edict by President Xi Jinping to nurture China’s home-grown technology champions and start-ups, is flexible in its listing approvals. It accepts applications by non-profitable companies, and has instituted a registration-based listing regime.

JD.com could also make use of its various ventures spread across the Chinese regulatory spectrum. The central bank picked JD.com to be the first e-commerce platform for its trial of China’s sovereign digital currency.

JD.com is also a key investor in Pudao Credit, the second company licensed to collect personal credit data in China. Ant Group’s Alipay and Tencent Holdings’ WeChat Pay were co-investors of a 2018 data-collection venture called Baihang Credit.

The efforts by JD.com to restructure its unit also underscored what’s at stake, said Zhao of DeHeng Law.

“If the company is merely fine-tuning its business by moving cloud technology forward to the front, it might still be possible for JD Technology to have its IPO approved, with the help of professionals like lawyers, brokers and investment institutions,” he said. “If the company wants to list as a fintech company, then it will need to restructure to comply with the regulations.”

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