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China debt crunch

China's Suning.com gets bailout from local governments and Alibaba

Suppliers join in rescue of debt-strapped retailer of appliances and electronics

Shares of Suning.com jumped by the maximum 10% on July 6, as trading resumed after a three-week halt. (Source photos by AP and Reuters) 

HONG KONG -- Troubled Chinese retailer Suning.com has secured a $1.4 billion bailout, backed by local government funds, suppliers and Alibaba Group Holding, as Beijing seeks to calm jittery debt markets that could undermine economic momentum.

Suning.com, a leading seller of home appliances and consumer electronics, said in a filing Tuesday that billionaire founder Zhang Jindong, his trust and two of his Suning holding companies had agreed to yield their controlling interest in the retailer, with a 16.96% stake to pass to a consortium led by the government of Jiangsu Province and the state asset management committee of Nanjing, the provincial capital where Suning.com is based.

Alibaba, home appliance makers Haier Group and Midea Group, electronics manufacturer TCL Technology and smartphone maker Xiaomi are also part of the rescue consortium, according to the filing. Through its unit Taobao China, Alibaba already held a 19.99% stake in Suning.com, which it acquired in 2015.

Under the deal, Zhang's stake would fall to 17.62% while his Suning Appliance company would retain a 2.73% interest.

Suning.com shares surged by the maximum 10% allowed to 6.15 yuan on Tuesday on the Shenzhen Stock Exchange, recovering from an eight-year low as they resumed trading for the first time since their suspension on June 16, pending the deal's announcement. The share sale was priced at 5.59 yuan a share, the last traded price before the halt.

Alibaba shares were up 1.2% at HK$208.40 by late afternoon in Hong Kong. 

Suning, which traces its origins to an air conditioning shop set up by Zhang in 1990, now has 4,000 stores, according to its website.

After establishing a dominant position in online shopping, Alibaba has invested heavily in recent years in physical retail, both by buying stakes in existing chains and building its own.

Last year, Alibaba doubled its stake in Hong Kong-listed hypermarket chain Sun Art Retail Group to over 70%, after earlier buying into department store group Intime Retail and Lianhua Supermarket Holdings. It also has its own supermarket chain, Freshippo, also known as Hema. In consumer electronics, it has often lagged behind rival JD.com.

According to Tuesday's bailout agreement, all parties agreed that the share sale proceeds would be used primarily to clear debt.

Suning.com used Carrefour's brand for a new line of appliance stores after buying the French group's Chinese operations in 2019.    © AP

Investor fears over Suning.com's finances began to boil when Zhang last year gave up rights to demand repayment of 20 billion yuan ($3.09 billion) from developer China Evergrande Group after it failed to list a unit on a domestic exchange as promised when it borrowed the funds. Suning.com has $7 billion of debts due within a year.

A Beijing court last month ordered a freeze on more than a quarter of founder Zhang's stake in Suning.com for reasons the company has not disclosed. Also in June, creditors agreed to extend the maturity on a 2.89 billion yuan bond by two years. The two events helped send the company's stock and bonds tumbling.

The conclusion of the bailout will provide Suning.com some stability as its sales have yet to recover from the effects of the coronavirus pandemic against its expanded debt burdens from deals to buy French retailer Carrefour's China operations and the department store arm of Dalian Wanda Group, among others.

The company said in a separate filing on Tuesday that it expects to report a net loss of between 2.5 billion yuan and 3.2 billion yuan for the first half of the year, after sales dropped by nearly a third. In the same period last year, it recorded a loss of 166.59 million yuan.

"The diversified investor portfolio helps push Suning.com to further improve the governance, operations and business transformation," the company said about the share sale deal. "The [consortium] will actively support Suning to grow healthily and stably."

The deal comes as Shenzhen International Holdings and Shenzhen Kunpeng Equity Investment Management separately said a March agreement to acquire 23% of Suning.com for $2.3 billion will not proceed.

Zhang is perhaps best known for a $319 deal to take a controlling stake in Italian pro soccer club Inter Milan in 2016. Soccer also has been an investment area for other acquisitive Chinese conglomerates now struggling with excessive debt, including Evergrande and Wanda Group.

China's total nonfinancial corporate debt climbed to 164.7% of gross domestic product in the last quarter of 2020 from 149.4% a year earlier, according to the Institute of International Finance. The ratio is the world's second-highest behind Hong Kong.

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