Local Governments Toss Another Lifeline to Struggling Suning

Two Jiangsu province-based arms of the government body that oversees major state-owned assets have agreed to set up a 20 billion yuan fund ($3.1 billion) with the parent of local retailing giant Suning.com Co. Ltd., throwing a lifeline to the money-losing company struggling under a mountain of debt.

Suning.com (00204.SZ) announced the formation of the new retail development fund on Thursday, saying its parent had signed a framework agreement establishing the entity with the Jiangsu provincial and Nanjing city arms of China’s State‑owned Assets Supervision and Administration Commission (SASAC).

In addition to the two SASAC units, Suning.com said other unspecified social funding sources would also contribute, without specifying how much each party would provide.

Suning.com added the fund would be used to invest in its best-performing assets and businesses, as it undergoes a major internal overhaul to improve its structure and set itself on a more sustainable long-term path. The move is expected to give the company more breathing room as it grapples with a heavy debt load.

Such government-led bailouts are becoming increasingly common as some of China’s former corporate superstars run into difficulties for various reasons, such as poor management or strategic blunders. Most such rescues are focused on big state-owned enterprises (SOEs) that are often bailed out by other big state-owned entities at the direction of local or central governments.

Such government intervention also sometimes occurs in the private sector for local champions like Suning, which was once a retailing leader in China’s earlier Reform Era and is a big contributor to the Jiangsu and Nanjing economies. Despite its status as a household name once known for its slick national chain of stories, the company failed to make the transition to e-commerce despite pouring billions of yuan into the effort, losing out to more innovative names like Alibaba, JD.com and Pinduoduo.

The publicly listed Suning.com has about 40 billion yuan in debt, with 16 billion yuan coming due in the next year. At the same time the company is losing big money on an operational basis and only managing to meet its obligations by selling off assets. Its parent had an even bigger debt load totaling about 200 billion yuan.

Concerns about the financial health of Suning.com’s sister unit, Suning Appliance, were raised starting last year, when online chatter of a cash crunch pressured bonds issued by Suning.com. Suning Appliance dispelled the talk as a “rumor” at that time, and partly defused market concerns by repaying 10 billion yuan of bonds on time last December.

 Read more  
Tip Sheet: Struggling Former Retail Champ Suning Looks for State Support 

The company’s ongoing state-led bailout dates back to late February when Suning announced a 14.8 billion yuan share sale that handed over nearly a quarter of the company to two investment bodies owned or controlled by the division of SASAC in the southern boomtown of Shenzhen. 

Shortly before that deal was announced, two sources familiar with the situation had told Caixin that the Nanjing branch of SASAC would most likely become Suning’s new controlling shareholder and would lead an effort to reorganize the company’s debt.

Another source later explained that Suning had begun looking for investors several months earlier and that the Jiangsu government had been involved in those talks about a rescue plan initially. But the sides failed to reach an agreement, opening the door for the Shenzhen SASAC group to seal its own plan in just a few weeks.

A previous version of this story identified the wrong company as signing a framework agreement with the two Jiangsu province-based arms of the government body that oversees major state-owned assets. It was the parent of Suning.com.

Contact reporter Yang Ge (geyang@caixin.com)

Download our app to receive breaking news alerts and read the news on the go.

Follow the Chinese markets in real time with Caixin Global’s new stock database.