(Bloomberg) — Chinese billionaire Zhang Jindong has received a $1.36 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% 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 stock surged 10% in pre-market trading in Shenzhen on 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 the 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.”
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 to a nearly eight-year low in Shenzhen 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.
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.
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 Suning Appliance will hold 2.73%. Alibaba, which formed a strategic alliance in 2015, will become the biggest shareholder with a 19.99% stake.
Suning Appliance agreed to sell a 23% stake worth 14.8 billion yuan earlier this year to parties including Shenzhen International Holdings Ltd. but the failed to proceed “on the terms and conditions of business cooperation,” according to a filing by Shenzhen International on Monday.
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.
(Adds share price reaction in second paragraph.)
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