In a bid to beat its main competitor, JD.Com Inc (ADR) (NASDAQ:JD) has complied with the sale of of its finance arm for a whopping 14.3 billion Yuan cash. It retained the share of its future profits.
The sales proceedings will come to an end by mid-2017. The company chose to remain mum about the investors or buyers. In the future the company wishes to adopt a structure similar to Alibaba Group Holding Ltd (NYSE:BABA) and its affiliate Ant Financial. This involves separating the financial from the main E-commerce business. The company spokesperson stated that the deal went beyond the analysts’ expectations. It was branded as Wal-Mart Stores Inc (NYSE:WMT)-backed and the deal cost the spun-off unit over 50 billion Yuan.
The main intention of the deal
The deal is meant to come up with a range of financial services including loans, insurance products and securities. By investing with domestic investors, the company will gain a great deal of the necessary regulatory licenses. Acquiring the whole of 68.6% stake in JD will also help the company increase its preference among the investors. However, the financial risk attached to JD is something investors cannot overlook. The firm is generating funds for an investment that had no assigned discrete figure.
The results of the sale
The NASDAQ Listed company, JD Financial hopes to create an empire that ranks in the top ten largest Fortune 500 companies in a year’s time. The online deal will have JD’s payment in a tag of war against Zheijiang Ant Small & Micro Financial Services group who rank in the growing service industry of online financiers. The deal gives JD 40% of Pretax profits in the future from JD Finance. In the future it retains the right to exchange that with 40% Equity of the finance units.
Future plans for JD
JD also benefits from an advantage in price wars in fast moving consumer goods. It has a history of emerging victorious in past related price wars. The rural Chinese market in the main point of focus now for both JD and Alibaba. Though the physical retail market in Chinese remains under-developed, E-commerce is expected to take off real fast with the increasing use of smartphones and internet’s awareness.