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Alibaba may be Suning’s white knight in hiding

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HONG KONG (Reuters Breakingviews) - Alibaba may be the simple solution to Suning.com’s mounting debt problems. The e-commerce giant’s 20% stake in the embattled Chinese retailer has plunged by two-thirds in value since it bought it in 2015. The shares have further to fall as Suning faces billions of debt due. Given Alibaba’s push into bricks-and-mortar commerce, a takeover could benefit both sides.

Suning’s financial pain is partly self-inflicted. As one of China’s biggest electronics retailers, the $8 billion company led by Zhang Jindong went on an aggressive buying spree in recent years, snapping up Carrefour’s Chinese business as well as football clubs Inter Milan and a now-defunct local team. In 2017, Zhang even led a consortium to invest in embattled property developer Evergrande.

The retailer is now grappling with $7 billion of debt due within a year. To complicate matters, affiliated entities that are controlled by Zhang and hold stakes in Shenzhen-listed Suning have pledged the stock for loans, as has the founder himself. One unit, which is 50% owned by Zhang, has $1.8 billion in debt outstanding, according to Dealogic. The company’s shares were halted 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 shares down by more than a quarter this year and margin calls coming in, Zhang is seeking outside help. In February, he unveiled plans to sell a 23% stake, worth $2.2 billion, to funds backed by the Shenzhen government. Earlier this month, his home province provided what was effectively a one-year $493 million loan to Suning.  

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 business though joint omni-channel initiatives”. Key to that is Suning’s vast network of over 2,600 stores, distribution centres and last-mile delivery stations.

Since shedding its asset-light strategy, the $572 billion Alibaba is no stranger to physical shops and logistics. In addition to Suning, the web giant also owns stakes in supermarket operator Sun Art Retail, home improvement and furniture chains Easyhome New Retail and Red Star Macalline, and more. In 2017, it even took department store InTime private – a possible template for Suning. Zhang need only to let go.  

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CONTEXT NEWS

- Shares of Shenzhen-listed Chinese retailer Suning.com were halted on June 16. The company cited a major business announcement to be made about transferring the company’s shares in the near future.

- The Beijing Second Intermediate Court froze 540 million of Suning's shares owned by controlling shareholder Zhang Jindong, or 5.8% of the company's total, for three years, after one of the creditors filed for legal enforcement, Suning said in a Shenzhen stock exchange filing on June 15.

- For previous columns by the author, Reuters customers can click on [CHEN/]

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Suning announcement (in Chinese): http://www.szse.cn/disclosure/listed/bulletinDetail/index.html?ae13ee45-327c-4899-86bf-82e22ea1a365

FT story https://www.ft.com/content/f320aa74-cd34-44b1-b500-c5987a2d4a08

BREAKINGVIEWS-Evergrande contagion tests Beijing’s generosity

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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