JD.com to separate from logistics activities via IPO

Offer overview

On February 16, 2021, China’s second-largest e-commerce company, JD.com Inc. (NASDAQ

NDAQ
: JD, $ 84.31, market cap: $ 131.94 billion), has announced plans to separate its logistics unit; JD Logistics, by listing the shares on the Main Board of the Hong Kong Stock Exchange. The Company has submitted a proposed spin-off to the Hong Kong Stock Exchange under PN15, and the Hong Kong Stock Exchange has confirmed that the Company can proceed with the proposed spin-off. The proposed exclusion will be effected through the JD Logistics Global Share Offer, comprising the Hong Kong Public Offer and the International Offer. On the same day, this company had submitted a listing application form (Form A1), through its co-sponsors, to the Hong Kong Stock Exchange to apply for listing and authorization to trade in JD Logistics shares. (representing ordinary shares with a par value of $ 0.000025 each in the share capital of JD Logistics) on the Main Board of the Hong Kong Stock Exchange. Following the proposed demerger, the company will continue to indirectly own more than 50% of JD Logistics; and remains a subsidiary of the Company. It should also be noted that the IPO could also be affected due to the current global environment due to the pandemic, which recently caused Chinese stocks to lose momentum. Thus, the brokers pointed out that JD Group may need to act quickly to deliver the IPO of JD Logistics due to the current market situation.

We published a Potential Spin report on December 30, 2019, in which we discussed the fact that the company had entered early talks with the banks on a possible overseas IPO that could bring in $ 8 billion to $ 10 billion. The proposed exclusion is conditional, among other things, on obtaining the approval of the Listing Committee of the Hong Kong Stock Exchange for listing and authorization to trade in JD Logistics Shares, and on the final decisions of the Board and of the board of directors of JD Logistics. Details regarding the proposed spin-off, including the size and structure of the Global Offer, the extent of the decrease in the Company’s percentage stake in JD Logistics, have not yet been finalized. The company said it would announce further details if appropriate.

Rationale for the agreement

JD Logistics started as an internal logistics department of the JD Group in 2007. Since 2017, the company has opened its solutions and services to external clients with the aim of strengthening their supply chain. Over the years, the company has grown exponentially and now operates over 900 warehouses and employs over 190,000 delivery people. As part of its global strategy, the company is continuously building its international supply chain network, covering more than 220 countries / regions as of December 31, 2020. The company has already differentiated itself from its biggest rival, Alibaba, by spending much for its own logistics network, unlike Alibaba, which acts as a marketplace for traders and outsources its delivery to third-party courier companies. JD’s more reliable and timely delivery shone during the Covid-19 pandemic. JD Logistics said about 90% of orders processed for its parent company last year were delivered same or next day. This listing will also allow JD Logistics to compete with its peers as an independent company.

We believe that the proposed listing on the Hong Kong Stock Exchange will help unlock value for both JD Group and JD Logistics, which will benefit business stakeholders and help the newly formed company accelerate its business growth, especially with its external customers. The IPO will also result in a reassessment of the logistics business and attract an investor base looking for high growth opportunities in supply chain solutions and logistics services, which is different from the relatively more business model. diversified operations of JD Group. The proposed exclusion would create long-term shareholder value by allowing JD Logistics Group and JD Group to focus on their respective core businesses and capture different fundamentals of growth. With JD Logistics as a separate listed entity, the Company can fully focus and deploy its financial resources towards the development of JD Group activities without having to take into account the financing needs of JD Logistics Group. The exclusion would also allow JD.com Inc. and JD Logistics to directly and independently access the equity and debt markets in the future on a stand-alone basis. The separation will also clarify JD Logistics Group’s credit profile for rating agencies and financial institutions wishing to analyze and lend against credit supply chain solutions and logistics services business. Following the secondment, JD Group will continue to operate, among other things, online retail and e-commerce businesses in the market offering a diverse range of products.

The rapid digitization of the Chinese economy has created increasingly varied customer demands. These demands are currently being met by a fragmented group of historic logistics players. They are severely underserved, offering significant opportunities for supply chain solutions and logistics service providers, such as JD Logistics. According to the CIC report, the market size of the integrated supply chain logistics services industry is expected to increase from RMB 2,023 billion in 2020 to RMB 3,185 billion by 2025, a CAGR of 9.5% , or about 1.8 times the growth. China’s logistics spending over the same period. The integrated supply chain logistics services market in China is highly fragmented due to its large size and the specific requirements of the verticals. According to the CIC report, the top ten players accounted for only 7.9% of the market share in terms of turnover in 2019.

It should be noted that the list of logistics activities would be the second multi-billion JD exclusion in recent months. In December 2020, JD Health’s IPO raised $ 4 billion, the largest in Hong Kong last year. In addition, on March 31, the company, through a subsidiary, entered into definitive agreements with Jingdong Digits Technology Holding Co., Ltd. (JD Digits), under which the company will transfer the business of JD Cloud & AI and certain assets, valued together at around 15.7 billion RMB, to JD Digits, in consideration and in exchange for the issuance of ordinary shares by JD Digits. As a result of this transaction on March 31, 2021, the company’s stake in JD Digits increased to approximately 42%.

Company Description

JD.com Inc (parent)

JD.com is a leading technology-driven e-commerce company transforming to be the leading provider of supply chain-based technology and services. The company has opened up its technology and infrastructure to partners, brands and other industries as part of its Retail-as-a-Service offering to help drive productivity and innovation across a range of industries. . JD.com is a member of the NASDAQ100 and a Fortune Global500 company. Founded in 1998, JD.com’s retail platform went live in 2004. The company is engaged in the sale of electronics and home appliances and general merchandise (including audio products, video and books) from manufacturers, distributors and publishers in China on the Internet through its website, www.jd.com. It also offers an online marketplace that allows third-party sellers to sell their products to customers on the company’s website. The Company operates through the provision of a single class of service to accelerate and improve the delivery of its products over the Internet. JD.com operates approximately 210 warehouses with a total gross floor area of ​​approximately four million square meters in more than 50 cities. It operates more than 5,370 delivery and pickup stations in approximately 2,350 counties and districts across China. The Company also offers online and in-person payment options and customer services. As of December 31, 2020, JD.com had approximately 310,000 employees, excluding part-time employees and interns. The company recorded consolidated net income of $ 114.3 billion in fiscal year 20.

JD Logistics (Carve-Out)

JD Logistics was incorporated in the Cayman Islands on January 19, 2012. As of February 16, 2021, JD Group, through its wholly-owned subsidiary, held approximately 79.12% of the total issued share capital of JD Logistics. JD Logistics is the largest player in the Chinese integrated supply chain services market by total revenue in 2019, according to the CIC report. JD Logistics offers a full range of high quality supply chain solutions and logistics services made possible by technology, from warehousing to distribution, from manufacturing to end customers, covering regular and specialty items. In January 2021, JD Logistics signed an agreement with Chinese confectionery maker Xu Fu Chi. Leveraging the technological capabilities of JD Logistics, the collaboration will support Xu Fu Chi’s supply chain management system digitization efforts and enhance the confectionery maker’s omnichannel service capabilities through various distribution channels. As of December 31, JD Logistics operates more than 900 warehouses, covering a total gross floor area of ​​approximately 21 million square meters. The company is one of the main Chinese players in terms of storage space. As part of its global strategy, the Company is also continuously building an international supply chain network, which covered over 220 countries / regions as of December 31, 2020. JD Logistics reported revenue (under the name of New Business segment) of $ 6.6 billion in FY2020.