(Yicai Global) March 3 -- JD Finance has been officially divested by JD.Com Inc. [NASDAQ: JD], and its valuation may exceed CNY50 billion (USD7.2 billion). However, some insiders believe its valuation may be three times higher than the initial calculations.
JD.Com Inc. signed a final agreement on restructuring JD Finance on March 1, touchweb's WeChat public account reported. According to the agreement, JD.Com Inc. will no longer be the legal owner or controller of JD Finance after divesting all its shareholding (68.6 percent) in JD Finance.
In return, it will receive approximately CNY14.3 billion in cash as well as 40 percent of JD Finance's before-tax profits after it starts making profits. Furthermore, subject to Chinese regulatory rules, JD.Com Inc. is entitled to convert its rights in JD Finance into 40 percent equity.
It means that JD.Com Inc. got CNY14.3 billion for the divestiture of its 28.6 percent holding, implying that JD Finance is valued at CNY50 billion. But an industry expert believes this may amount to a much higher value.
The value of JD.Com Inc's entitlement to 40 percent profit generated by JD Finance is higher than a 40 percent stake, because JD.Com Inc. can reap the benefits without bearing any risks, meaning that the 28.6 percent stake in JD Finance after reorganization is worth more than CNY14.3 billion, and the actual valuation of the company is above CNY50 billion, the expert suggested.
The agreement states Liu Qiangdong, chairman and CEO of JD.Com Inc., will buy a 4.3 percent stake in JD Finance for the same price offered to other third-party investors based on the same agreement. Additionally, Mr. Liu will still have the voting majority at JD Finance as he can vote on behalf of staff and other investors through proxy arrangements on top of his own voting right.
The deal will be completed in mid-2017, and JD Finance will no longer be included JD.Com Inc.'s consolidated financial statements afterward, the final agreement says.
The final agreement and the proposed deal have been approved by the board of directors at JD Group.
Some market participants believe that the valuation of JD Finance is CNY68 billion, and some industry people suggest that the company will soon launch a new financing round, and its valuation will rise to CNY120-150 billion by then. JD Finance still has abundant cash flow and does not have any urgent need for funding, said an informed source.
Following its separation from JD.Com Inc., JD Finance will likely launch an IPO in 2017 or 2018 like its rival Ant Financial did before, an analyst suggested. However, the company denied any stock listing plan.