Caixin
May 29, 2020 08:43 PM
BUSINESS & TECH

JD.com Stalks Rival Pinduoduo to Take $100 Million Slice of Gome Retail

A Gome appliance store in Shanghai on April 20.
A Gome appliance store in Shanghai on April 20.

Just 40 days after Pinduoduo’s strategic investment in veteran electronics chain Gome, its major e-commerce rival JD.com Inc. announced a similar move Thursday to buy $100 million worth of convertible bonds in the retailer.

The bonds JD.com acquired, equivalent to about 2.8% of Hong Kong-listed Gome Retail Holdings Ltd.’s existing issued shares, will have an annual coupon rate of 5% with a tenure of three years and will be convertible at HK$1.25 (16 U.S. cents) per share, 37.91% higher than Gome’s closing price of 91 Hong Kong cents on the previous trading day.

The deal is not completed yet as it awaits trading and convertible share listing approval by the Stock Exchange of Hong Kong (HKEx). JD.com and Pinduoduo are Nasdaq-listed companies.

Prior to JD.com’s investment, Pinduoduo Inc., the e-commerce upstart that overtook JD.com earlier this month as the second most valuable online retailer in China after Alibaba Group Holding Ltd., announced in April it agreed to subscribe to $200 million in convertible bonds issued by Gome.

This was equivalent to about a 5.62% stake in exchange for the right to sell branded products supplied by the chain retailer on Pinduoduo’s e-platform.

Gome explained at the time the company chose to issue convertible bonds instead of new shares so that existing stakeholders’ shares would not be diluted, and its finances could be improved if bond buyers opted to convert them into shares.

Pinduoduo’s investment will enable it to obtain high-quality branded products made by the likes of Siemens, Sony and Haier at lower prices using Gome’s supply chain edge.

But for JD.com, the latest move is more of another strategic extension of its existing strength in selling electronics products, including home appliances.

Since early 2019, JD.com has invested in Five Star, D Phone, Lecoo and other enterprises. It has also created several diversified formats including JD E-Space, JD Computer and Digital Products Stores and JD Home Appliance Experience Stores, according to a company statement.

Gome, Suning, and Five Star used to be the top three home-appliance retail chains in China. But fierce competition and rapid consolidation in the consumer market allowed Suning to gradually overtake the other two by successfully adopting online strategies.

Gome has been lagging since its founder Huang Guangyu was jailed in 2010 for bribery and insider trading. According to its latest earnings result released on March 31, the company lost nearly 2.6 billion yuan ($363.3 million) on a total revenue of 59.5 billion yuan in 2019.

Gome and JD.com will seek to further leverage their online and offline advantages to achieve better supply chain integration, JD said in its company release. They will also share logistics and installation service resources, and work together on other businesses such as financial services.

Gome closed 5.49% up Friday. JD.com closed down 2.19% at $51.20 Thursday in New York, but publication time the stock had rebounded by 1.31% in premarket trading.

Ding Yi and Yuan Ruiyang contributed to this report.

Contact reporter Isabelle Li (liyi@caixin.com)

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