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JD.com’s $3.9 billion Hong Kong IPO sees another Chinese giant diversify away from U.S. markets

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Chinese e-commerce giant JD.com will go public on Thursday in Hong Kong and is expected to raise at least $3.9 billion, boosting Asia into its biggest week for initial public offerings so far in 2020.

JD’s Hong Kong debut, likely one of the largest IPOs this year, is a secondary listing for the company. JD went public on the New York-based Nasdaq stock exchange in 2014, a few months before its online retailing rival Alibaba Group debuted on the same exchange.

Nationwide coronavirus lockdowns in China in the first months of the year caused online retail sales to surge. In the first quarter of 2020, JD’s revenue grew 20.7% year-on-year, and online sales during the May Day holiday in the first week of May increased 45% compared to the holiday period in 2019.

The June 18 debut coincides with JD’s massive “618” shopping festival, an annual promotion that last year brought in a record $29.2 billion in sales. The event coincides with the company’s founding on June 18, 1998.

In the 22 years since, JD has transformed from a small seller of electronics to the second-largest e-commerce company in China by market share.

History of JD.com

JD’s billionaire founder and chairman Liu Qiangdong, also known as Richard Liu, started the business in 1998, selling computer parts at a market stall in Beijing. Liu had built up a chain of 12 electronics stores across the city by 2003, when the SARS outbreak struck China. He closed all his stores and shifted to selling his wares online instead.

JD.com on the Fast Track to Drone Deliveries
An employee prepares a JD.com drone for a package delivery demonstration at the company’s drone testing site in Xi’an, China, on Tuesday, June 19, 2018. JD’s army of drones is key to its delivery network.
Qilai Shen/Bloomberg via Getty Images

When the outbreak subsided, he stayed online, launching a consumer retail website in 2004. Today JD.com has 387 million active customers. Chinese tech conglomerate Tencent Holdings owns an 18% stake of JD, and Walmart Inc. has a roughly 10% stake.

JD sells everything from baby formula to Prada handbags. It offers a luxury delivery service, JD Luxury Express, in which white-gloved men in suits deliver high-end products to customers’ doors. It’s also a grocer. The pandemic boosted its online supermarket sales; between January and March, vegetable sales increased 207%, and sales of chicken and eggs increased 301%.

JD controls most of its supply chain and delivers goods to customers from its 730 warehouses, promising same- and next-day delivery with the help of tens of thousands of drivers and an extensive network of delivery drones. By comparison, Alibaba functions largely as a platform and payment service for third-party sellers and earns much of its revenue from advertising.

JD, like Alibaba, is trying to expand beyond online retailing into business-to-business services like logistics and cloud computing. In the e-commerce sector, it’s the main rival of Alibaba, which still dominated with an estimated 56% market share in 2019, compared to JD’s 17%, according to data from eMarketer. Both companies are wary of competition from relative newcomer Pinduoduo.

CEO case

JD’s Hong Kong IPO splash will come as its founder and CEO shirks public view. Liu has stepped back from company recently. He is still listed as JD’s CEO and chairman, and he still controls almost 80% of shareholder votes, but his name has been scrubbed from the records of several JD-linked companies in the last few months.

In 2018, Liu was arrested in Minnesota on suspicion of rape. Prosecutors later dropped the charges, citing insufficient evidence.

World Internet Conference - Wuzhen Summit
Richard Liu, CEO and founder of China’s e-commerce company JD.com, attends a development forum in 2015. He has stepped back from public view since being accused of rape in 2018; he denies the claims.
Visual China Group via Getty Images/Visual China Group via Getty Images

Liu’s accuser, a University of Minnesota student named Liu Jingyao who hails from China, filed a civil lawsuit against the executive in April 2019 after prosecutors dropped the criminal charges against him. The suit is ongoing, and in April a Minnesota district court dismissed a motion filed by JD to dissociate the company’s name from the case against its founder.

A lawyer for Liu Qiangdong said in an April 2019 statement to the New York Times that based on the dismissal of criminal charges “and our belief in [Liu’s] innocence, we strongly feel that [the civil] suit is without merit and will vigorously defend against it.”

JD’s U.S.-listed shares dropped as much as 60% in the months after the allegation against Liu, who had been a prominent public face of the company he founded, and who has never identified a successor. Share prices have since rebounded.

Secondary listings

The JD listing comes one week after the $2.7 billion Hong Kong IPO of Chinese gaming company NetEase, which, like JD, is already Nasdaq-listed. NetEase CEO William Ding said NetEase’s secondary listing in Hong Kong shows the company is “returning to a market in which we share a closer mutual understanding.”

Rising tensions between the U.S. and China and an increasingly hostile atmosphere towards Chinese companies in the U.S. are driving more Chinese companies closer to home, to markets in Hong Kong and on the mainland.

China’s largest computer chipmaker, Semiconductor Manufacturing International Corporation, is planning to go public in Shanghai after delisting from the New York Stock Exchange in June, and Robin Li, CEO of Baidu Inc., said in May that the Nasdaq-listed Chinese search engine firm is considering a secondary listing in Hong Kong because of concerns that the U.S. is “constantly tightening the control of Chinese stock companies.”

More than 200 Chinese companies trade on U.S. exchanges; 32 of them are eligible for secondary listings in Hong Kong. Alibaba initiated a secondary listing in Hong Kong last year.

Nasdaq on May 18 said it would enforce stricter rules on companies that want to list on the New York-based exchange. The new requirements call for levels of auditing and fundraising transparency that would make it more difficult for companies from China to list. The changes were announced as Nasdaq prepared to delist China’s Luckin Coffee Inc. in light of Luckin’s financial fraud scandal. Luckin is appealing the decision.

The U.S. Senate on May 20 unanimously passed a bill that will increase oversight and require audits of foreign companies that list on U.S. exchanges. Companies that the U.S. is not able to audit will be banned from U.S. exchanges, and the measure mandates that foreign companies certify they are not owned or controlled by a foreign government.

The bill is not specific to China, but its sponsor Sen. John Kennedy (R–La.) said last month, “The Chinese Communist Party cheats, and the Holding Foreign Companies Accountable Act would stop them from cheating on U.S. stock exchanges.”

Before the bill becomes law, it must pass through the U.S. House of Representatives and then be signed into law by President Donald Trump.

China’s securities regulator rebuked the U.S. legislation and said it would “weaken the confidence of global investors in U.S. capital markets.” JD referenced the U.S. bill in the risk factors section of its Hong Kong prospectus, saying the bill, if enacted, could adversely effect U.S. share prices, lead to a loss of investor confidence, and potentially lead to JD’s delisting from Nasdaq.

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Trump approves TikTok deal involving Oracle, ending international standoff

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Donald Trump approved Oracle’s bid for the U.S. operations of TikTok “in concept,” a deal forced by the president’s orders last month declaring the popular video-sharing app a national security threat.

“I have given the deal my blessing. If they get it done that’s great. If they don’t, that’s OK too, ” Trump told reporters Saturday as he left the White House for a campaign rally in Fayetteville, N.C. “I approved the deal in concept.”

The new company, which will be called TikTok Global, has agreed to donate $5 billion to an education fund, which Trump said would satisfy his demand that the government receive a payment from the deal. “They’re going to be setting up a very large fund,” he said. “That’s their contribution that I’ve been asking for.”

Under terms of the deal, Oracle and Walmart will control 20% of the new TikTok Global, according to a person familiar with the matter. Sequoia Capital and General Atlantic, already investors in TikTok’s Chinese owner ByteDance, are also expected to take stakes in the new company, the person said.

TikTok said in a statement that it was “pleased that the proposal by TikTok, Oracle, and Walmart will resolve the security concerns of the U.S. administration and settle questions around TikTok’s future in the U.S.”

The company confirmed Oracle will host all its U.S. data and secure its computer systems. TikTok said it is working with Walmart on a commercial partnership and it, along with Oracle, will take part in a TikTok Global pre-IPO financing round in which they can take as much as a 20% cumulative stake in the company.

The deal was forced by a pair of bans Trump issued in August citing national concerns over TikTok’s Chinese ownership. The Commerce Department on Saturday delayed by a week a ban that would have forced Apple Inc. and Alphabet Inc.’s Google to pull the TikTok video app from their U.S. app stores on Sunday.

TikTok Global will likely be headquartered in Texas and will hire “at least” 25,000 people, Trump said. TikTok will need to hire thousands of content moderators, engineers, and marketing staff that were previously located in China and around the world.

To sweeten the deal for Trump, TikTok promised to hire an additional 15,000 jobs more than the 10,000 positions the company already pledged to fill earlier this year. It’s unclear if there’s a timeline to achieve that target, or any guarantees that it will follow through. Facebook Inc., the largest U.S. social media company, employed about 45,000 people in 2019, while Twitter Inc. employed only 4,900, according to data compiled by Bloomberg.

Trump is ramping up pressure on Chinese-owned apps in the weeks before the Nov. 3 presidential elections, citing national security concerns about the data U.S. citizens provide to them and the potential for Beijing to use them for spying. The president is trailing his opponent Joe Biden in polls and has sought to portray himself as tougher on Beijing than the Democrat.

While the Chinese government must now sign off on the transaction for it to go forward, as of earlier this week, ByteDance was growing increasingly confident that the proposal would pass muster with Chinese regulators, people familiar with the matter told Bloomberg.

Under the terms of the agreement reached early in the week, ByteDance would retain a majority of TikTok’s assets and control over the algorithm, with Oracle and other U.S. investors taking minority stakes.

Trump seemed to contradict that on Saturday. “It will have nothing to do with China, it’ll be totally secure, that’ll be part of the deal,” he said. “All of the control is Walmart and Oracle, two great American companies.”

Trump spoke with Oracle Chairman Larry Ellison and Walmart Chief Executive Officer Doug McMillon on Friday, telling them he still expected the U.S. government to receive a cash payment as part of the transaction, according to people familiar with the matter. They agreed to the educational donation as a way to satisfy Trump’s demand, one of the people said.

The new U.S. company intends to hold an initial public offering in about a year, according to people familiar with the matter. TikTok plans to use the proceeds from the listing for the $5 billion educational grant, one of the people said.

Oracle will get full access to review TikTok’s source code and updates to make sure there are no back doors used by the company’s Chinese parent to gather data or to spy on the video-sharing app’s 100 million American users, according to people familiar with the matter.

The deal came together last weekend, the result of high-level negotiations between ByteDance, Oracle and top Trump administration officials after ByteDance rejected a bid from Microsoft Corp. and Walmart to buy the U.S. TikTok service outright.

Beijing has signaled it would greenlight a deal as long as ByteDance doesn’t have to transfer the artificial intelligence algorithms that drive TikTok’s service, Bloomberg has reported.

The Treasury Department said the deal is subject to a security agreement that requires approval by the Committee on Foreign Investment in the U.S., or Cfius. The term sheet that’s been negotiated between Cfius and the companies will now have to be formalized in a document that details the mechanics for implementing the terms of the deal.

That document would likely include requirements related to the establishment of the new company, arrangements governing its relationship with ByteDance, whether an IPO is part of the deal, whether ByteDance will have to divest its entire stake in the IPO and what would happen if for some reason the IPO doesn’t occur, said Aimen Mir, a lawyer at Freshfields Bruckhaus Deringer LLP and a former deputy assistant secretary for investment security at Treasury.

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Trump Says He’s Approved Oracle Deal For U.S. TikTok

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Trump Says He’s Approved Oracle Deal For U.S. TikTok(Bloomberg) — Donald Trump said he’s approved Oracle Corp.’s bid for the U.S. operations of TikTok “in concept,” a deal forced by the president’s orders last month declaring the popular video-sharing app a national security threat.“I have given the deal my blessing. If they get it done that’s great. If they don’t, that’s OK too, ” Trump told reporters Saturday as he left the White House for a campaign rally in Fayetteville, N.C. “I approved the deal in concept.”The new company, which will be called TikTok Global, has agreed to donate $5 billion to an education fund, which Trump said would satisfy his demand that the government receive a payment from the deal.“They’re going to be setting up a very large fund,” Trump said. “That’s their contribution that I’ve been asking for.”TikTok Global will likely be headquartered in Texas and will hire “at least” 25,000 people, Trump said.That figure could not be immediately verified. Facebook Inc., the largest U.S. social media company, employed about 45,000 people in 2019, while Twitter Inc. employed only 4,900, according to data compiled by Bloomberg.The deal is the result of Trump’s orders last month over national security concerns about TikTok’s ownership by ByteDance Ltd., a Chinese company.The Chinese government must now sign off on the transaction for it to go forward.Trump is ramping up pressure on Chinese-owned apps in the weeks before the Nov. 3 presidential elections, citing national security concerns about the data U.S. citizens provide to them and the potential for Beijing to use them for spying. The president is trailing his opponent Joe Biden in polls and has sought to portray himself as tougher on Beijing than the Democrat.Under the terms of the agreement between the two companies, Bytedance retains a majority of TikTok’s assets and control over the algorithm, with Oracle and other U.S. investors taking minority stakes.“It will have nothing to do with China, it’ll be totally secure, that’ll be part of the deal,” Trump said. “All of the control is WalMart and Oracle, two great American companies.”Trump spoke with Oracle Chairman Larry Ellison and WalMart Inc. Chief Executive Officer Doug McMillon on Friday, telling them he still expected the U.S. government to receive a cash payment as part of the transction, according to people familiar with the matter.The new U.S. company intends to hold an initial public offering in about a year, according to people familiar with the matter.Oracle, Tiktok, and Walmart didn’t immediately respond to requests for comment.Oracle will get full access to review TikTok’s source code and updates to make sure there are no back doors used by the company’s Chinese parent to gather data or to spy on the video-sharing app’s 100 million American users, according to people familiar with the matter.The deal came together last weekend, the result of high-level negotiations between ByteDance, Oracle and top Trump administration officials after ByteDance rejected a bid from Microsoft Corp. and WalMart to buy the U.S. TikTok service outright.WalMart remains interested in investing in the deal and could land a board seat on the new company, according to one person familiar with the matter.Beijing has signaled it would greenlight a deal as long as ByteDance doesn’t have to transfer the artificial intelligence algorithms that drive TikTok’s service, Bloomberg has reported.(Updates with company comments in 14rh paragraph)For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.


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4 Free Tips to Get Your Business to Show Up on Google Maps

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If your business profile isn’t complete, has inaccurate information and doesn’t have any photos of your business, you probably won’t show up.

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