Suning sells 23% stake to state-owned investors to strengthen finances

Zhang Jindong, the billionaire founder of Suning, agreed to sell 15% of shares to Shenzhen Kunpeng Equity Investment Management or an entity specified by the state firm

Suning sells 23% stake to state-owned investors to strengthen finances
An employee works at a Suning logistics base on the Singles' Day online shopping festival in Nanjing, Jiangsu province, China November 11, 2019. Photo: Reuters.

(ATF) China’s debt-laden retail group Suning.com, which also owns Inter Milan, sold 23% of its stake to two state-owned investors for 14.8 billion yuan ($2.3 billion) in a bid to strengthen its core business in retail and improve profitability.

According to an exchange filing by Shenzhen-listed Suning.com on Sunday, Suning Holdings Group and Suning Appliance Group have agreed to transfer a total of 744.8 million, or 8% of Suning's stake to Shenzhen International Holdings Ltd, a logistics and toll roads operator.

Zhang Jindong, the billionaire founder of Suning, Suning Appliance Group, and Xizang Trust Co Ltd agreed to transfer a total of 1.39 billion, or 15% of shares to Shenzhen Kunpeng Equity Investment Management Co Ltd or an entity specified by the investment firm.

The purchase price would be 6.92 yuan ($1.07) per share. At the proposed price, the acquisition will cost Shenzhen International 5.15 billion yuan ($798 million) and Kunpeng Equity 9.66 billion yuan ($1.5 billion).

After a temporary suspension last Thursday when Suning announced the stake sale plan, shares of Suning.com resumed trading on Monday and surged 10% to 7.7 yuan ($1.2).

Hong Kong-listed Shenzhen International edged up by as much as 4.65% to HK$13.5 (US$1.74) but fell quickly after the first trading hour and closed at HK$12.58 (US$1.62), down 2.02% for the day.

“After the completion of the share transfers, Shenzhen International and Kunpeng Equity will actively propel the standardisation of the company’s governance, improve the management and incentive systems, keep the company’s core management team stable, and help the company to further focus on its core business in order to achieve high-quality overall growth,” Suning.com said.

Shenzhen International is 43.4% owned indirectly by the State-owned Assets Supervision and Administration Commission (SASAC) of the Shenzhen local government, while Kunpeng Equity is wholly owned by Shenzhen SASAC.

The announcement came as a surprise to the market as earlier reports said a consortium of state-owned enterprises from Suning.com’s home province, Jiangsu, would help bail out the debt-laden retail giant. 

The two buyers from Shenzhen, together with other related parties, will empower Suning.com to boost its operations in supply chains, e-commerce, technology, logistics and duty-free businesses, Suning.com said. The retail group also expects the deal to bring it benefits in policy support, finance and taxation.

After the deal worth 14.8 billion yuan ($2.28 billion) in total, founder Zhang’s ownership in the company is reduced from 20.96% to 15.72%. 

Alibaba’s subsidiary, Taobao (China) Software Co Ltd, owns 19.99% in Suning.com.

At the same time, the Nanjing-based company announced a plan to set up its South China headquarters in Shenzhen, the tech hub of China. 

“Leveraging the investors’ local sources, the South China headquarters will help the company improve its operational capability and raise the brand's profile in South China, especially in the Guangdong-Hong Kong-Macao Greater Bay Area, effectively increasing the market share,” Suning.com said.

600 stores closed, debt obligations

Suning.com, founded in 1990, is one of China’s largest retail chains with both physical stores and online presence, as well as various franchise outlets. It also runs its own warehouse and logistic distribution network across China.

In 2020, Suning.com ranked at 324th on the Fortune Global 500 list.

However, debt obligations of the company loom, as the company’s liabilities due within one year amount to nearly 40 billion yuan ($6.2 billion), including 5.7 billion yuan of outstanding bonds, 28.1 billion yuan of bank loans, and 4.6 billion yuan of non-current liabilities, according to iFinD data and the company’s third-quarter financial report from 2020.

The pandemic had pushed the Alibaba-backed company into the red. The retail chain closed over 600 stores in the first nine months of last year.

In its 2020 performance account released on Saturday, Suning.com said it recorded a loss of 3.9 billion yuan ($604 million) last year, compared with 9.8 billion yuan ($1.5 billion) of net profit in 2019. Its revenue decreased 4% year-on-year to 258.5 billion yuan ($40 billion) in 2020.

Because of fierce price wars in the e-commerce space, Suning.com’s gross profit margin decreased in 2020 as it moved more sales online amid the pandemic. Online sales accounted for nearly 70% of Suning’s total revenue in 2020.

To strengthen finances, Suning has decided to cut non-core business operations – including its football clubs – in a bid to focus on its key area of retail.

Football clubs to close

Also on Sunday, Jiangsu Suning Football Club announced over its Weibo social media channel that it would cease operations of all its football teams with immediate effect.

Just three months ago, Jiangsu FC won the Chinese Super League title for the first time with a playoff win over eight-time champions Guangzhou Evergrande.

As China’s consumption recovered, Suning.com’s revenue picked up in the fourth quarter, rising 13.8% year-on-year. 

The company is upbeat about a business turnaround in 2021 after implementing measures to optimise its organisational structure and logistic systems, and securing 6 billion yuan ($12.3 million) in a series A financing round for Yunwang Wandian, its e-commerce arm.

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China Suning Suning.com retail chain debt obligations stake sale Shenzhen govt /SASAC Kunpeng equity Alibaba Jiangsu football club