HONG KONG, June 22 (Reuters Breakingviews) – Alibaba (9988.HK) could be the easy solution to Suning.com (002024.SZ) growing debt problems. The e-commerce giant’s 20% stake in the struggling Chinese retailer has fallen by two-thirds since its takeover in 2015. Shares have fallen further as Suning faces billions in debt. Given Alibaba’s push into the brick and mortar business, a takeover could benefit both sides.
Suning’s financial pain is partly self-inflicted. As one of China’s largest electronics retailers, the $ 8 billion company headed by Zhang Jindong has embarked on an aggressive buying spree in recent years, seizing the Chinese business of Carrefour (CARR.PA) as well as football clubs Inter Milan and a local team which has now disappeared. . In 2017, Zhang even led a consortium to invest in struggling real estate developer Evergrande (3333.HK).
The retailer is now saddled with $ 7 billion in debt due within a year. To complicate matters, affiliates controlled by Zhang with stakes in Shenzhen-listed Suning pledged the shares for loans, as did the founder himself. One unit, 50% owned by Zhang, has $ 1.8 billion in debt, according to Dealogic. The company’s shares were suspended last week after a Beijing court froze a quarter of Zhang’s shares in response to a lender demanding early repayment of a loan.
With Suning’s shares down more than a quarter this year and margin calls coming in, Zhang is looking for outside help. In February, he announced plans to sell a 23% stake, worth $ 2.2 billion, to funds backed by the Shenzhen government. Earlier this month, his home province granted Suning a $ 493 million one-year loan.
Yet his white knight is hiding in plain sight. In 2015, Alibaba paid $ 4.6 billion for a one-fifth stake in Suning. At the time, the online shopping goliath touted “synergies in e-commerce, logistics and incremental businesses through joint omnichannel initiatives.” Key to this is Suning’s extensive network of more than 2,600 stores, distribution centers and last mile delivery stations.
Since abandoning its asset relief strategy, $ 572 billion Alibaba has been no stranger to physical stores and logistics. In addition to Suning, the web giant also has stakes in supermarket operator Sun Art Retail (6808.HK), home improvement and furniture chains Easyhome New Retail (000785.SZ) and Red Star Macalline (601828. SS), and more. In 2017, he even took the private InTime department store – a possible model for Suning. Zhang just has to let go.
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– Shares of Chinese retailer Suning.com, listed in Shenzhen, were suspended on June 16. The company cited an important commercial announcement to be made on the transfer of the company’s shares in the near future.
– The Beijing Second Intermediate Court froze 540 million Suning shares held by majority shareholder Zhang Jindong, or 5.8% of the company’s total, for three years after one of the creditors filed a request for execution, Suning said in a Shenzhen Stock Exchange filing on June 15.
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