BEIJING (BLOOMBERG) – Chinese billionaire Zhang Jindong has received a US$1.36 billion (S$1.8 billion) state-backed bailout of 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 per cent stake in Suning.com, according to a statement on Monday (July 5). The deal was struck at 5.59 yuan a share, the near eight-year low the stock was trading at before it was halted on June 16.
The stock surged 10 per cent in pre-market trading in Shenzhen on Tuesday.
Alibaba Group Holding and leading Chinese appliance makers Midea Group and Haier Group are also partners in the fund, as are smartphone maker Xiaomi and TCL Technology Group. After the transaction, none of the major holders will have a controlling stake.
The bailout means Mr 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.
“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.”
Suning.com had a market value of about 52 billion yuan (S$10.8 billion) before the trading halt, but it has 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 Mr Zhang waived his right to a 20 billion yuan payment from China Evergrande Group, the world’s most indebted property developer.
The stock tumbled to a nearly eight-year low in Shenzhen last month after a Beijing court froze three billion yuan worth of shares held by Mr Zhang – representing 5.8 per cent of Suning.com – and creditors agreed to extend a bond for Suning Appliance Group, which is owned by Mr Zhang and fellow co-founder Bu Yang.
In a separate statement on 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.
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 Chinese President Xi Jinping’s grip on power.
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 (S$430.8 million) in 2016. The acquisition spree was characteristic of a group of Chinese conglomerates, among them HNA Group, Dalian Wanda Group and Anbang Insurance Group, which have now been forced to unwind investments to repay debt or accept government control.
After the deal, Mr Zhang, who used to be the biggest holder in Suning.com, will have his stake cut to 17.62 per cent, while Suning Appliance will hold 2.73 per cent. Alibaba, which formed a strategic alliance in 2015, will become the biggest shareholder with a 19.99 per cent stake.
The billionaire, who founded Suning in 1990, confounded investors when he waived his right to the Evergrande payment. The decision, which helped his friend and Evergrande chairman Hui Ka Yan save his own company, increased pressure on the retailer’s cash flow.