(Bloomberg) — Chinese billionaire Zhang Jindong secured a $1.36 billion state-backed bailout for the troubled retail arm of his Suning empire, marking another step in Beijing’s efforts to clean up its heavily indebted conglomerates.
A group of investors, led by the Nanjing state asset management committee and the Jiangsu provincial government, will take a 16.96% stake in Suning.com Co., according to a statement Monday. The deal was struck at 5.59 yuan a share, the near eight-year low the stock was trading at before it was halted June 16. The shares surged 10% in Shenzhen trading Tuesday.
Alibaba Group Holding Ltd. and leading Chinese appliance makers Midea Group Co. and Haier Group Co. are also partners in the fund, as are smartphone maker Xiaomi Corp., and TCL Technology Group Corp. After the transaction, none of the major holders will have a controlling stake.
The bailout means Zhang will no longer control Suning.com, marking the end of a reign during which he led Suning into an array of businesses, including ownership of the Inter Milan soccer team. Bloomberg News reported earlier that the Jiangsu government, Alibaba and the other companies were considering their involvement in the bailout.
“The diversified investor portfolio helps push Suning.com to further improve the corporate governance, operations and business transformation as a retail service provider,” the statement said. “The fund will actively support Suning to grow healthily and stably.”
Evergrande Link
Suning.com had a market value of about 52 billion yuan ($8 billion) before the trading halt, but it’s been in trouble for some time. The retail business was weakened by a slowdown in spending during the coronavirus pandemic and concerns about its cash flow intensified in September, when Zhang waived his right to a 20 billion yuan payment from China Evergrande Group, the world’s most indebted property developer.
The stock tumbled last month after a Beijing court froze 3 billion yuan worth of shares held by Zhang — representing 5.8% of Suning.com — and creditors agreed to extend a bond for Suning Appliance Group Co., which is owned by Zhang and fellow co-founder Bu Yang.
In a separate statement Monday, the listed retail arm of Suning, one of China’s biggest retailers of appliances, electronics and other consumer goods, said it posted a preliminary first-half loss of 2.5 billion yuan to 3.2 billion yuan.
“The company’s deteriorating financials may have led to a stake selloff without any premium,” said Bloomberg Intelligence analyst Kevin Kim. The participation of China’s major appliance manufacturers in the bailout will mean they “have more incentives to sell their products through the Suning’s online and offline platforms, which are much needed for the retailer to make a profit turnaround,” he said.
China is taking advantage of a strengthening economy and stable financial markets to clean up its corporate sector, discouraging the kind of reckless debt-fueled expansion that inflated some companies to a dangerous size. The spawning of such bloated empires created a threat to the financial system as well as a challenge to President Xi Jinping’s grip on power.
Acquisition Spree
Suning was a prime example of that rapid diversification as it dove into an array of sectors from real estate and finance to sports, including the purchase of a controlling stake in Inter Milan for 270 million euros ($319 million) in 2016. The acquisition spree was characteristic of a group of Chinese conglomerates, among them HNA Group Co., Dalian Wanda Group Co. and Anbang Insurance Group Co. which have now been forced to unwind investments to repay debt or accept government control.
After the deal, Zhang, who used to be the biggest holder in Suning.com, will have his stake cut to 17.62%, while a related party, Suning Holdings Group, will own 2.73%. Prior to the bailout, Alibaba already had a 19.99% stake from a 2015 strategic alliance. Given its participation in the state-led sale, the e-commerce giant’s total holdings would now be more than that, though details were not disclosed.
(Updates with analyst comment in ninth paragraph and stake holdings details in 12th paragraph. An earlier version corrected the 11th paragraph to show Suning Holdings Group will hold 2.73% of Suning.com.)
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