Online retailer JD.com last week published details of its planned $1.5 billion US listing, signalling a potential new round of Chinese internet-related equity sales.
JD.com's IPO promises to be the biggest to date by a Chinese internet company and is much larger than previous Chinese US listings, which have tended to be around the $100 million to $200 million mark. It also comes at a time when JD.com’s biggest competitor Alibaba Group is still thinking about going public with an even larger IPO.
Despite the ongoing selloff in emerging markets, the omens are favourable. The four Chinese internet companies listed last year in the US market, including 58.com and AutoHome, had experienced average increases of 35% by the close on Monday. Gone, seemingly, are US investor concerns about Chinese corporate governance standards and in its stead there is a hunger to buy into the Chinese internet retail story. VipShop, an online discount stores listed in the US in late 2012, has surged 15-fold. Its follow-on $96 million share offering last March also received strong interest due to the lack of supply of such shares.
China’s online retail market was worth Rmb1.3 trillion (US$212 billion) in 2012 and is expected to reach Rmb3.6 trillion in 2016, representing a compound annual growth rate of 28.9%, according to internet research company iResearch.
JD.com, once known as 360buy and prior to that as Jingdong Century Trading, has a similar business model to US internet retail giant Amazon. With 35.8 million active customer accounts, JD.com just broke even last year and posted a net profit of Rmb60 million ($10 million) during the first nine months of last year.
JD.com’s IPO has rekindled talk of the mammoth Alibaba listing, which was expected by analysts to total as much as $15 billion last year, but it now looks like JD.com has stolen a march on its bigger rival.
Alibaba Group, the largest e-commerce company in China with an 80% market share, has long mulled a listing in Hong Kong or New York but has yet to confirm its plans. However, the company may not be able to list in Hong Kong because that market bans dual-class shareholder structures that give one set of shareholders more rights than another.
“It’s hard to say what the impact of JD.com’s listing on Alibaba’s is, or vice versa,” said a source familiar with Chinese US listings. “Investors value the long-term growth potential in the sector, not just one company.
CICC and JP Morgan, which were once confirmed on the JD.com deal, don’t appear in the prospectus released last week. One source said they are more likely to step away in favour of the Alibaba deal, as no bank can handle the two competitors due to the potential conflicts of interest.
Bank of America Merrill Lynch and UBS remain bookrunners on the JD.com deal.