Weak Market Halts Jingdong Mall IPO 市场气氛冷淡冲击京东商城IPO计划

By newsdoug on July 6, 2012

Weak investor sentiment towards overseas-listed Chinese Internet companies has claimed a major new victim in Jingdong Mall, China’s second largest e-commerce firm, which has reportedly put the brakes on a planned IPO even as it appears to be running low on cash. This new development is just the latest surprise in a tale that’s been full of mixed signals and non-stop surprises surrounding this fast-growing but money-losing company also known to many as 360Buy. It also bodes poorly for market for Chinese companies aiming to list overseas for the rest of the year, including an upcoming offering by online entertainment firm Shanda for its literature unit, Shanda Cloudary.

Let’s look at the latest twist in the Jingdong case, which has media reporting the company’s top management has reached an agreement with investors to delay its $1 billion-plus offshore IPO and to pursue a new round of private fund raising instead. (Chinese article)

What’s most surprising to me about this latest news isn’t that Jingdong Mall has delayed the offering, but rather that it will pursue a new round of private fund raising. That fact, if true, would means the company may be running dangerously low on cash, which seemed likely before since Jingdong made headlines after raising a record-breaking $1.5 billion in new funds just over a year ago from an investor group that included Russia’s Digital Sky Technologies.

Since then, Jingdong’s high-profile founder Liu Qiangdong has repeatedly said his company has no immediate plans for an IPO, even as other industry sources have said the company had hired investment bankers for just such an offering and even held a preliminary presentation for a select group of analysts in last month in Hong Kong for an offering as soon as later this summer. (previous post)

My previous guess was that Liu and Jingdong’s investors had differing views on an IPO, with Liu preferring to wait until his company became profitable while the investors were in a hurry to recoup some of their investment. Anyone who follows the space knows that China’s e-commerce sector has been gripped by intense cut-throat competition for more than a year now, sending most players deeply into the red. Despite that, a number of high-profile investments, most from early last year, have sent valuations for Chinese e-commerce companies into the stratosphere to unsustainably high levels.

All that said, my guess was that Digital Sky and Jingdong’s other investors were pressuring the company to make an IPO to recoup some of their money before China’s Internet bubble bursts, potentially shaving billions of dollars off their investments. This latest news, if true, means that Jingdong, like many of its peers, may actually be facing pressure not only from its investors but also from a looming cash crunch.

If that’s the case, look for announcement of a new fund-raising round in the second half of this year, though probably well below last year’s $1.5 billion. I also wouldn’t be surprised if the new fund-raising significantly lowers Jingdong’s valuation from previous estimates of $7-$10 billion to around half that level, as the bursting of China’s Internet bubble begins to accelerate.

Bottom line: Jingdong Mall’s delay of an IPO and pursuit of new private fund raising reflects both a chilly investor climate and also the company’s need for new cash.

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