Chinese e-commerce giant JD.com Inc.'s financial services spin-out, JD Finance, is currently in the market raising fresh capital at a RMB50 billion valuation, a person with immediate knowledge of the matter told China Money Network.
Investment institutions and individuals can buy JD Finance shares with a minimum purchase of RMB200 million. If JD Finance does not complete an initial public offering within five years, the company will repurchase investor shares at an annualized return of 9.38%, according to a document obtained from one of China's big four state-owned banks.
JD.com did not immediately respond to China Money Network's inquiry to confirm or clarify JD Finance's fundraising activities.
Chinese private companies, including many highly valued technology firms such as Chinese group buying and review portal Meituan Dianping, have utilized legal arrangements to allow a much wider investor base to buy their shares.
Only qualified institutional investors are permitted to participate in these deals, but securities and fund management firms have set up investment vehicles and limited partnerships to take portions of share purchases into smaller pieces possible for retail and individual investors.
In the case of JD Finance, any investors can purchase a minimum of RMB200 million worth of JD Finance's shares for a five-year investment period. Investors must pay 1% purchase fee, 2% management fee, 0.02% custodian fee and 20% incentive fee on any return above an annualized return of 6%.
Earlier this month, JD.com Inc. divested all of its 68.6% shares in JD Finance, in order to separate JD Finance's performance from that of the NASDAQ-listed parent. The move is also aimed at preparing JD Finance for a domestic IPO.
The spin-off, which is expected to be completed mid-year, sees JD.com exchange its 68.6% interest in JD Finance for RMB14.3 billion cash payments and rights to receive 40% of JD Finance's future pre-tax profit. JD.com can also exchange its rights for JD Finance's future profits for a 40% interest of JD Finance at a future date if permitted by regulators.
Even though JD.com did not disclose the valuation used in the spin-off, a RMB14.3 billion cash price for essentially a 28.6% stake of JD Finance means the financial unit was valued at RMB50 billion, the same valuation used for its current fundraising.
JD.com established JD Finance in 2013 to provide consumer credit, supply chain financial services, crowdfunding, wealth management, insurance agency and third-party payment services. In January 2016, JD Finance raised RMB6.65 billion (US$1 billion) from investors including Sequoia Capital China, China Harvest Investments and China Taiping Insurance at RMB46.65 billion (US$7 billion) on a fully-diluted, post-investment basis.