JD.com has completed a business reorganisation that transfers the e-commerce giant’s cloud computing and artificial intelligence operations as well as other assets worth 15.7 billion yuan (US$2.4 billion) to fintech unit JD Technology, whose plans to go public in Shanghai appear to be on hold.
The transaction increases JD.com’s equity stake in JD Technology, previously known as JD Digits and JD Finance, to 42 per cent from 36.8 per cent, according to the Beijing-based company’s filing with the US Securities and Exchange Commission (SEC) on Wednesday. It expected JD Technology to be “better positioned to deliver a suite of cutting-edge technology services to its business partners”.
After the restructuring, JD Technology could become part of an ambitious initiative with US content delivery network services provider Cloudflare, which involves the development of 150 new data centres to help global enterprises do business in mainland China and domestic companies expand overseas. That partnership was formed by JD Cloud & AI and San Francisco-based Cloudflare in April last year.
A JD.com spokeswoman said the company had no further comment beyond the SEC filing.
JD Technology’s restructuring has come amid sweeping regulatory changes in China’s financial technology sector, which resulted in authorities pulling the rug from under the largest capital-raising exercise in global finance – the US$35 billion initial public offering (IPO) in Hong Kong and Shanghai by Ant Group – 48 hours before trading was expected to start in November last year. Ant Group is an affiliate of Alibaba Group Holding, the parent company of the South China Morning Post.
In February, China’s financial regulators and Ant Group agreed on a plan to overhaul the company. The scheme involves Ant Group placing its major businesses into a financial holding company overseen by Beijing-based watchdogs, including its fabulously lucrative credit origination platform, its investment technology unit and its budding insurance operations, according to people familiar with the matter.
Regulators have since published a slew of new rules covering financial services offered by internet platforms and technology companies to guard against perceived financial risks
Those developments have led JD Technology to rethink its own listing plans. The company is likely to withdraw its IPO application to list on Shanghai’s Star Market and resubmit it at a future date, according to two sources briefed about the discussions who declined to be named. Its application currently sits in abeyance. The Shanghai Stock Exchange and the China Securities Regulatory Commission have neither approved nor rejected the application.
“For now, the company’s priority is to comply with regulations,” said Zhao Zhidong, a partner at DeHeng Law Offices in Shanghai, referring to JD Technology’s recent moves.
“The restructuring gives it a better path to future development, as digital technology is an up-and-coming industry,” Zhao said. “Going public would be a long-term goal for the company because the regulators are not in favour of such action now.”
In January, JD Technology named Li Yayun as its new chief executive, replacing Chen Shengqiang. Li, who served as JD.com’s chief compliance officer and the Communist Party secretary in the company, had never been in charge of a business unit before.
JD.com, which is controlled by founder Richard Liu Qiangdong, has been on a tear in Hong Kong’s IPO market. Its delivery arm, JD Logistics, applied in February to float its shares in the city, where it could raise about US$5 billion. Its JD Health business raised US$3.5 billion in its maiden share offering in December, six months after the parent company raised US$4.5 billion in a secondary listing in Hong Kong last June.