BEIJING, February 17 (TMTPOST) – JD Logistics Inc. has filed an initial public offering (IPO) prospectus to the Hong Kong Stock Exchange (HKEx), potentially raking in billions of dollars to leverage a strong post-Covid-19 online shopping momentum.
The imminent IPO will be a milestone for China’s e-commerce giant JD.com, after the listing of its two other associates, JD Technology and Jingdong Health in just nine months.
Prior to the IPO, JD.com holds 79.12% of JD Logistics while Jingdong E-Commerce (Express) LLC holds another 7.9%. The remaining shares are held by a total of 16 companies, according to the prospectus. JD.com's founder Richard Qiangdong Liu controls 79.6% of shares with voting rights of the major parent company.
The listing could raise about US$5 billion, giving the shipping and delivery firm a valuation of about US$40 billion, according to people familiar with the matter. The IPO news on Tuesday night Beijing time sent JD.com’s shares soaring to a record high on HKEx on Wednesday and on Nasdaq on Tuesday (closed at US$103.43, compared with its IPO price of US$19 in May 2004).
Chinese e-commerce sales have expanded a few times during the Covid-19 pandemic, which drove consumers online for contactless purchases and made companies that engage in shipping and delivery attractive. The coronavirus outbreak started in January 2020 and has been largely under control since last April in China, with sigle-digit or double-digit daily new cases in a few cities from time to time.
BofA Securities Inc., Goldman Sachs Group Inc. and Haitong International Capital are the joint sponsors of the IPO, according to the prospectus.
Still in Red
Despite a potentially high market valuation, the logistics company has been reporting a net loss since its inception in 2007 although the loss has decreased significantly in the past year.
In the first nine months of 2020, its revenue soared 43.2% year-on-year to RMB49.5 billion (about US$7.1 billion), and its net loss was narrowed to RMB11.71 million (about US$1.67 million) from about RMB996 million (about US$142.3 million) in the same period of 2019. Meanwhile, external clients, as opposed to the customers of JD.com, contributed two fifths of the logistics firm’s total revenue.
Liu, the then JD.com’s CEO, wrote in an internal email to JD Logistics in 2019 that the financing could support the logistics firm’s operation for only two more years if the company continued to bleed money.
Wang Zhenhui, former CEO of JD Logistics, was replaced by Yu Rui, former head of human resource of JD.com, on December 30, 2020. Wang cited personal reasons for his departure.
Relations with JD.com
In 2007, Liu proposed to build its own shipping and delivery leg by investing in US$10 million he just raised. Most of JD.com’s investors were opposed to the idea. A logistics business unit was a huge financial burden to an Internet company, they argued.
In order to convince the investors, Liu put forward a budget of US$1 billion. The investors thought an in-house logistics arm would be just an endless money-burning business unit and would drag the e-commerce firm to a collapse.
However, Liu thought that the in-house shipping unit, despite its expensiveness, would boost the core competitiveness of the e-commerce conglomerate and improve user experience for online shoppers. There was a turnaround in 2010 when Liu met Zhang Lei, CEO of Hillhouse Capital, who offered an investment of US$300 million, much higher than what Liu originally asked for – US$75 million.
The shipping and delivery unit become a standalone company in 2017 and received a flush of US$2.5 billion from Hillhouse, Sequoia China, China Merchants Group, Tencent, China Life and other investors with a deep pocket in February 2018.
As of September 30, 2020, JD Logistics had over 800 warehouses across China, with a total storage area of over 20 million square meters. Among the warehouses, there are 28 large smart logistics centers.