A new online finance company is set to challenge Alibaba's Ant Finance as JD.com announced plans on Thursday, March 2, that it would spin off its finance business for $2.1 billion, as part of its expansion efforts into the online finance market.
According to a New York Times report, JD.com online finance unit will not only pose a challenge to Ant Financial, but it could also push Alibaba's financial affiliate to make an early initial public offering.
Alibaba, JD.com and Tencent share the lucrative online finance market where many Chinese Internet companies succeed with online payment services and other online financial products. The growth of these companies in the online finance market is driven by the rising middle-class who is knowledgeable in the digital technology as well by state-run banks that have not adopted themselves to technology.
The report said that JD Finance will offer services in credit scoring and loans, as well as provide both consumers and companies with a payment platform. The new unit has also partnered with China UnionPay, a government-backed financial company, for cooperation on online payments, credit cards and rural financing programs.
The new unit will have a separate payments business only for Chinese investors in which they can apply for financial licenses as well as invest in other products such as securities and mutual funds.
In January last year, JD Finance was able to raise about 6.65 billion yuan ($1 billion) to reach a valuation of 46.65 billion yuan (about $6.8 billion). The fundraising round was led by investors such as Sequoia Capital China, China Taiping Insurance and China Harvest Investments.
But this is small compared to Alibaba whose Ant Financial has raised $4.5 billion in April last year, at a valuation of $60 billion, as it continues to expand, with plans to go public in China.
Under the spinoff deal for JD Finance, investors will get a 28.6 percent share in JD.com for an investment of 14.3 billion yuan ($2.1 billion). As agreed, JD.com will lose control of the company but will be allowed to have 40 percent of the future profits.
In addition, Richard Liu, the chief executive and chairman of JD.com, can have 4.3 percent stake in JD Finance and allowed voting rights in the separate company, the report said.
Josh Gartner, a JD.com spokesman, said the investors of the finance unit were both new and old investors but did not say details about them.
The company also did not divulge where the proceeds of the sale would be spent but Gartner said that the company had been making investments in logistics and technology to support its e-commerce business.
On Thursday, March 2, JD.com reported that it incurred a net loss of 1.7 billion yuan ($240 million) in the fourth quarter of last year, down from the 7.6 billion yuan it lost in the same period the previous year.
"We remain committed to investing in technology and customer service to drive long-term sustainable growth across our established and emerging business areas," Sidney Huang, the chief financial officer of JD.com, said in a press statement.