JD.com, Inc. — Moody's upgrades JD.com's ratings to Baa1; outlook stable

In terms of social factors, JD.com handles vast amounts of personal data, exposing it to the risk of a data breach. However, this risk is mitigated by JD.com’s compliance with legal and regulatory requirements for the collection, processing, retention and protection of personal data, supported by an up-to-date data security system.

In terms of governance considerations, Moody’s has taken into account JD.com’s prudent approach towards investment and expanding funding channels, leaving it with ample financial buffer. Today’s rating action reflects the company’s improved financial profile arising from this prudent financial strategy.

Moody’s also considers the high concentration of voting power in the company’s key shareholder, Richard Liu. However, this risk is mitigated by (1) a balanced board, with most of the members being independent nonexecutive directors and only independent directors in its audit committee; and (2) the company’s long track record as a listed and regulated entity and the presence of other strategic shareholders, such as Tencent Holdings Limited (A1 stable) and Walmart Inc. (Aa2 stable).

FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS

The stable rating outlook reflects JD.com’s strong business profile, stable profit margin and sustained solid cash flow.

Given JD.com’s investment needs, an upgrade is unlikely in the near term. However, JD.com’s ratings could be upgraded over time if it (1) continues to grow revenue and profits, (2) remains prudent in its investments, and (3) maintains controlled growth in JD Digits’ receivables securitization with good loan-quality management.

Financial indicators that would lead to an upgrade include (1) adjusted debt/EBITDA remaining below 2.0x, and (2) continued growth in operating cash flow and a net cash position, both on a sustained basis.

Moody’s could downgrade the ratings if (1) JD.com fails to maintain stable profitable operations, (2) it engages in acquisitions that strain its balance-sheet liquidity or raise its overall operational or financial risk, or (3) JD Digits aggressively grows its receivables securitization, raising the risk of additional financial requirements from JD.com if nonperforming loans rise.

Financial indicators that would lead to a downgrade include (1) adjusted debt/EBITDA remaining consistently above 2.5x, and (2) negative operating cash flow or a reversal to an operating loss on a sustained basis.

The principal methodology used in these ratings was Retail Industry published in May 2018 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1120379. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

JD.com, Inc. is the largest retailer in China in terms of revenue, both online and offline. The company offers a wide selection of products, including communications, computers and consumer electronics, home appliances, apparel, food, books and other household items.

The company provides an online marketplace for third-party sellers to sell products to customers through its website and mobile applications. As of 30 June 2020, JD.com owned and operated an in-house end-to-end fulfillment and delivery network that covered almost all counties and districts in China.

REGULATORY DISCLOSURES

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