JD Technology’s listing fate becomes a guessing game amid regulatory uncertainty

Minghe Hu
·5-min read

What happens next at JD Technology, the fintech unit of one of China’s largest online shopping platforms, has become a puzzle for industry watchers after it pulled its initial public offering application from the Shanghai Stock Exchange on March 30, confirming a South China Morning Post report in early March that its listing plan had hit the buffers.

The company, previously known as JD Finance and then as JD Digits, has been trying to move more towards “technology” with less emphasis on “financial” after Beijing turned up the heat on internet-based credit services provided by Big Tech.

Just a day before it announced the IPO pullback, the company said it had completed a business restructuring to absorb the “cloud computing” and “artificial intelligence” units from parent JD.com, adding a valuation of 15.7 billion yuan (US$2.28 billion) and increasing its parent’s stakeholding to 42 per cent.

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Analysts say the company faces a similar fate to that of Ant Group, the fintech giant affiliated with Alibaba Group Holding, which had to call off its IPO plan in Hong Kong and Shanghai at the last minute due to regulatory changes. JD Technology, which is now a hodgepodge of fintech, cloud and AI operations, needs a further business realignment to meet the new rules, which will then decide whether and how fast a new listing plan can be executed, according to analysts.

JD Technology withdraws IPO application in Shanghai

Liu Meng, a fintech analyst at Forrester Research, said JD.com would likely try a second time to list the unit in Shanghai “early next year”.

“The Ant IPO incident has dramatically undermined JD Digits’ valuation,” said Liu. “But the situation will change soon because it has now consolidated JD Group’s computing and AI arms. This will definitely elevate its valuation.”

One person close to JD’s listing plans, who declined to be named as the information is private, told the Post that there was little possibility for JD Technology to list in Shanghai this year. “JD.com has thrown in the towel by pulling back the [Shanghai IPO] application, and there’s no point trying again in a matter of months,” the person said.

Bloomberg News reported this month that JD Technology was planning to set up a financial holding company to comply with regulatory rules, citing unidentified people familiar with the situation. As a result, the financial holding arm, like a bank, would be split from the technology business, the news agency reported.

China Business News, a local newspaper, reported on Thursday that JD’s fintech arm was quickly losing people with staff losses within some departments running at “up to 20 per cent”. The newspaper cited unidentified sources as saying that the online deposit business of JD.com had ground to halt after China tightened control of the industry.

These developments are in sharp contrast to the days in 2017 when Chen Shengqiang, the former chief executive of JD Technology who left to become chief of staff at JD.com, told employees that JD Finance would be able to create “at least 20 billionaires and 300 millionaires” within the company.

D Technology completes business, ownership restructuring

A JD.com spokeswoman did not immediately reply to a request for comment on Friday.

JD Digits filed an IPO application to raise an estimated 20 billion yuan (US$3.1 billion) last September on the Star Market, but a dramatic change in the regulatory environment occurred the following month as financial regulators published new rules to rein in the growth of fintech. These focused in particular on small online loans to consumers and small businesses, and required online lenders to raise the percentage of the loan they fund with banks as well as limiting the size of the loans they provide for individual lenders.

As far as industry watchers are concerned, JD Technology is now back to ground zero after the IPO pullback and regulatory changes.

One option open to JD.com would be to split off the “financial” side of JD Technology before trying another listing on the Star Market – which was designed to enhance access to capital for emerging technology companies. But according to bourse rules, companies must wait at least six months before reapplying for a listing.

But any restructuring could be complex and painful. According to the prospectus JD Digits originally filed, the online consumer loan and cash loan services provided by Baitiao and Jintiao contributed 43 per cent of company revenue in the first half of 2020.

“JD Digits will need to serve the real economy instead of being a company that simply provides online loans, because otherwise it will bring risks to the economy, something Beijing doesn’t want to see,” said Wang Xiaohui, president at State Research Technology.

The company could also apply to list in Hong Kong. Compared with Shanghai, Hong Kong has been nice to JD.com. Its delivery arm, JD Logistics, applied in February to float its shares in the city, and is expected to raise about US$5 billion. Its JD Health business raised US$3.5 billion in its maiden share offering in the city in December, six months after parent JD.com raised US$4.5 billion in a secondary listing in Hong Kong last June.

“There’s no downside for JD Technology to pick Hong Kong as a future listing location because the market is the most mature and liquid in Asia,”said Edward Tse, founder and chief executive of Gao Feng Advisory Company.

“It would also be possible for it to dual-list in both Shanghai and Hong Kong. Ant Group’s case was exceptional, so this is definitely a possible choice for other promising companies to try in future,” said Tse.

Alibaba is the owner of the South China Morning Post.

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