China scrutiny stymies JD.Com fintech unit's $2 billion Hong Kong IPO - sources

© Reuters. FILE PHOTO: A man stands outside JD.Com’s headquarters, amid the Singles' Day shopping festival, during an organised tour in Beijing, China, November 9, 2021. REUTERS/Tingshu Wang

By Julie Zhu and Scott Murdoch

HONG KONG (Reuters) - JD (NASDAQ:JD) Technology, the fintech arm of Chinese e-commerce company JD.Com, has been forced to delay an up to $2 billion Hong Kong IPO because domestic regulatory approval for the listing has not been forthcoming, said four people with knowledge of the matter.

The financial technology, cloud and artificial intelligence arm of JD.Com applied to the China Securities Regulatory Commission (CSRC) in late January seeking an offshore listing, according to the regulator's website.

The company was hoping to lodge its first filings with the Hong Kong Stock Exchange by the end of March, followed by the launch of the initial public offering (IPO) later this year, said three of the sources. It appointed banks for the listing, according to sources.

However, it has not yet managed to secure approval from the CSRC which is needed for the domestically incorporated company to list offshore, including in the Chinese-controlled territory of Hong Kong, they added.

The development highlights the uncertainties that Chinese companies, mainly those from the technology sector, continue to face in their offshore listing attempts amid growing scrutiny of their business structures and data security, among other things.

It also poses a challenge to JD.Com's newly appointed CEO Lei Xu even as the company seems to have come off relatively unscathed from China's regulatory crackdown that has weighed on business growth, offshore fundraising and share prices of its rivals over the past year.

JD.Com and JD Tech did not respond to emailed requests for comment. The CSRC did not respond to a faxed request for comment.

The main regulatory concern about JD Tech's planned IPO is linked to the firm's consumer finance business, said one of the four people, who, like the other sources, declined to be named due to confidentiality constraints.

It was not immediately clear how JD Tech is planning to resolve the regulator's concerns or what is the new time frame for the listing.

Chinese regulators have sharpened scrutiny of fundraising by fintech companies, which usually encompass consumer finance businesses, after authorities abruptly blocked the mega listing of Alibaba (NYSE:BABA)'s affiliate Ant Group in 2020.

Beijing has in recent years become uncomfortable with banks heavily using micro-lenders or third-party fintech platforms for underwriting consumer loans, amid fears of rising defaults and deteriorating asset quality in a pandemic-hit economy.

HONG KONG IPO SLOWDOWN

This is not the first setback for the listing plans of JD.Com's fintech business. JD Tech's predecessor JD Digits filed an application for a 20 billion yuan ($2.97 billion) IPO on Shanghai's STAR Market in September 2020 but withdrew it in March last year.

In the same month, JD.Com sold its cloud and AI businesses to JD Digits for a combined valuation of 15.7 billion yuan, in a move seen by the market to help dilute the latter's original focus on finance.

According to JD Digits' prospectus in 2020, its two consumer finance platforms - Baitiao and Jintiao - had a combined 70 million annual active users in the first half of that year.

The delay in securing regulatory approval for the Hong Kong IPO means JD Tech will have to recast its financial accounts to ensure up to date figures are used in the filings, three of the people said.

JD Tech's Hong Kong listing delay worsens the city's already poor IPO performance this year, with just $1.9 billion raised year to date compared to $20.3 billion by the same time last year, according to Refinitiv data.

($1 = 6.7228 Chinese yuan renminbi)