JD.com Spins Off Internet Finance Unit

(Beijing) — JD.com, China's second-biggest e-commerce company, agreed to sell its finance arm for $2.1 billion as part of a plan to reorganize the fast-growing business and challenge industry leader Ant Financial.

JD.com reached an agreement to sell its 68.6% stake in JD Finance to a group of domestic investors including JD.com CEO Richard Liu Qiangdong for about 14.3 billion yuan, the company said Thursday. JD Finance offers small loans, wealth management and other financial services online. The transaction is expected to close in mid-2017.

In addition, JD.com reported strong fourth-quarter results, completing a 2016 swing to full-year profits for the first time in 18 years of operation. For the full year 2016, JD.com posted a net income of 1 billion yuan on a non-GAAP basis, compared with a net loss of 900 million yuan in 2015. Net revenue for 2016 was 260.2 billion yuan, up 44% from a year before.

Under terms of the JD Finance sale, JD.com will receive 40% of future pre-tax profits from JD Finance when it becomes profitable. The seller will also have an option to convert the profit-sharing right into a 40% equity stake, subject to regulatory approval.

JD.com Chairman and CEO Liu will take about 4.3% of the finance unit but will retain a majority of voting rights through proxy agreements, the company said in a statement. The company didn’t identify the other investors.

Nasdaq-listed JD.com announced a plan to reorganize JD Finance last year to make it fully owned by Chinese shareholders to be easier to obtain certain financial service licenses in China, such as securities trading.

In 2016, JD Finance reported a net cash outflow of 39.8 billion yuan and a net cash inflow of 42.3 billion yuan through financing activities, JD.com said.

The deal values JD Finance at 50 billion yuan, up from a valuation of 46.65 billion yuan last year when the unit raised 6.65 billion yuan from investors including Sequoia Capital China, China Harvest Investments and China Taiping Insurance.

Ant Financial, the online payment and financial services provider controlled by Alibaba Group Chairman Jack Ma, raised $4.5 billion last year and was valued by investors at about 60 billion yuan.

JD.com said its fourth-quarter revenue jumped 47% from a year earlier to 80.3 billion yuan, driven by strong sales during year-end holiday shopping events. Non-GAAP net income for the quarter was 546.1 million yuan, compared to 661.7 million yuan loss the same period last year.

The number of annual active customer accounts increased by 46% to 226.6 million in the 12 months ended Dec. 31 from 155 million in 2015, JD.com said.

Shares of JD.com rose 3.5% to $31.73 in morning trading in New York, reaching a 14-month high.

Contact reporter Han Wei (weihan@caixin.com)