Largest IPO of Chi­nese Web firm yet

China Daily (Canada) - - FRONT PAGE - By MICHAEL BARRIS in New York michael­bar­ris@chi­nadai­lyusa. com

JD.com, China’s sec­ond­biggest elec­tronic com­merce com­pany, filed to raise $1.5 bil­lion in a US ini­tial pub­lic of­fer­ing that would be the largest by a Chi­nese In­ter­net com­pany, re­flect­ing China’s boom­ing online re­tail mar­ket.

“In­vestors are very hun­gry for the piece of con­sumer e-com­merce space in China,” Fran­cis Gask­ins, a part­ner at IPO re­search com­pany IPODesk­top.com, was quoted by Reuters. US in­vestors re­gained their ap­petite for Chi­nese stocks late in 2013 af­ter ac­count­ing scan­dals froze de­mand. The num­ber of US-listed Chi­nese stocks peaked at 40 in 2010.

Baidu Inc, China’s largest search-en­gine com­pany, raised $122 mil­lion in a 2005 New York IPO.

For­merly known as 360buy Jing­dong Inc and backed by Saudi bil­lion­aire Prince Al­waleed bin Talal, JD.com is said to be try­ing to hold its IPO in the US ahead of ri­val and mar­ket leader Alibaba Group Hold­ing Ltd. Alibaba has not yet an­nounced plans for a US IPO. If it were to go pub­lic this year as ex­pected, the of­fer­ing would be the big­gest since Face­book Inc’s 2012 deal.

China is on a course to over­take the US as the world’s big­gest online re­tail mar­ket this year with pre­dicted sales of nearly $180 bil­lion, as in­creas­ingly wealthy middleclass shop­pers buy more items online and im­prove­ments to the na­tion’s dis­tri­bu­tion net­work kick in.

JD.com, founded in 1998 as Jing­dong Cen­tury Trad­ing Co, is reap­ing the ben­e­fits of the boom. It said in De­cem­ber it would top its 2013 sales tar­get of 100 bil­lion yuan ($16.5 bil­lion).

The Bei­jing-based com­pany and other web-based re­tail­ers in China, in­clud­ing US global re­tail­ing gi­ants Wal­Mart and Ama­zon Inc, dwell in Alibaba’s shadow, which has cap­tured nearly 80 per­cent of the Chi­nese mar­ket. Bankers pre­dict an Alibaba IPO could raise up to $15 bil­lion and value the com­pany at more than $100 bil­lion.

JD.com tries to dif­fer­en­ti­ate it­self from Alibaba by op­er­at­ing its own net­work of couri­ers and ware­houses, a fac­tor it says en­sures timely and ef­fi­cient de­liv­ery. Alibaba de­pends on mer­chants and ex­ter­nal courier firms for their lo­gis­tics.

With 35.8 mil­lion ac­tive cus­tomer ac­counts, JD.com posted a profit for the first nine months of 2013 af­ter a string of losses, ac­cord­ing to the IPO fil­ing. It had 35.8 mil­lion ac­tive cus­tomer ac­counts and pro­cessed 211.7 mil­lion or­ders in the first nine months of 2013. Rev­enue surged 70 per­cent to $8 bil­lion in the pe­riod.

Founder and CEO Richard Liu owns a 46 per­cent in­ter­est in JD.com, ac­cord­ing to the fil­ing. Al­waleed’s King­dom Hold­ing Co owns about 5 per­cent while Tiger Global Man­age­ment LLC has 22 per­cent.

JD. com’s IPO f i ling did not re­veal how many Amer ican de­posi­tar y shares it planned to sell, the ex­pected share price or the ex­change on which the shares would trade. It said the $1.5 bil­lion fig­ure is a place­holder used to cal­cu­late fees and may change. The com­pany said it would use the of­fer­ing pro­ceeds to buy more land rights, build new ware­houses, ex­pand its dis­tri­bu­tion and make ac­qui­si­tions.

The f i ling cited last week’s rul­ing by a Se­cu­ri­ties and Ex­change Com­mis­sion ad­min­is­tra­tive law judge that four Chi­nese units of the “Big Four” au­dit ing f i rms should face a six-month

Inve‘

stors are very hun­gry for the piece of con­sumer ecom­merce space in China.” FRAN­CIS GASK­INS PART­NER AT IPO RE­SEARCH COM­PANY IPODESK­TOP.COM

sus­pen­sion from au­dit­ing US-traded com­pa­nies as a risk fac­tor. Say­ing its in­de­pen­dent reg­is­tered pub­lic ac­count­ing fi rm is one of the four firms sub­ject to the sus­pen­sion, JD.com’s fil­ing said the com­pany could be “ad­versely af­fected by the out­come of the pro­ceed­ings, along with

1.5

Is a place­holder fig­ure used to cal­cu­late fees by JD.com and

may change. other US- l isted com­pa­nies au­dited by th­ese ac­count­ing fi rms”.

The fi rms re­ceiv­ing the bans have said they will ap­peal the de­ci­sion. In his judg­ment, Ad­min­is­tra­tive Law Judge Cameron El­liot said the firms broke US law when they re­fused to turn over cer­tain client doc­u­ments for in­spec­tion to aid in SEC in­ves­ti­ga­tions of pos­si­ble fraud. The Chi­nese firms in­sisted their hands were tied by Chi­nese law which treats the au­dit doc­u­ments as “state se­crets”.

China’s se­cu­ri­ties sub­se­quently ac­cused the SEC of ig­nor­ing China’s ef­forts and progress made on cross-bor­der rules co­op­erat ion. Deloitte Touche Tohmatsu CPA Ltd, Price­wa­ter­house­Coop­ers Zhong Tian CPAs Ltd, Ernst & Young Hua Ming LLP and KPMG Huazhen have 21 days to fi le a pe­ti­tion for re­view with the SEC be­fore the Jan 22 rul­ing would be­come fi nal.

The rul­ing in­ter­rupted what ap­peared to be a rally in Chi­nese IPOs in the US af­ter the ac­count­ing scan­dals dried up of­fer­ings from that group. 2013 saw eight ini­tial pub­lic of­fer­ings, rep­re­sent­ing an in­crease from the three Chi­nese list­ings held in 2012.

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