JD.com plans to enter brokerage business with $1.5b deal

JD.com Inc is in talks with Yongjin to buy part or all of a stake in Sinolink Securities worth at least 10 billion yuan ($1.5 billion), according to a report by Reuters.

Yongjin Group, a holding company focusing on finance, holds a 27% stake in Sinolink Securities Co., which in turn holds controlling interest in Sinolink Futures, Sinolink Capital, Sinolink Innovative Investment, Sinolink Securities (Hong Kong), Yuehai Financing, and GFund Management. Yongjin manages more than 400 billion yuan of assets, with 30 billion yuan self-owned.

One of Reuters’ sources said the deal could be the biggest bet in acquisition value terms by Beijing-based JD.com in China’s $45 trillion financial markets. “The valuable brokerage license is key for tech giants to monetize their huge online traffic and grow into bigger firms, as otherwise, they have to direct such traffic to other financial institutions.”

JD.com started discussions with Yongjin late last year and the $1.5 billion valuation of the 27% stake in Sinolink Securities is based on the brokerage’s market value of 39 billion yuan ($6 billion).

Official data indicates that Sinolink was close to standing among the top 20 brokerages in China by operating revenue in 2019. The acquisition would be JD.com’s third deal in the financial sector, after investing in an online platform for automotive financing Yixin Capital’s $550 million fundraising in 2016, and China Taiping Insurance Holdings’ financial services unit in 2018.

China has recently passed new rules for financial holdings firms that require a capital threshold for companies that operate more than two types of financial businesses. The government is empowered to force a share sale should a company fail to comply.

Alibaba Group has already invested in Huatai Securities and Tencent has a stake in Hong Kong-based online brokerage Futu Holdings. Both Chinese tech giants hold stakes in China International Capital Corp., the country’s leading investment bank.

Alibaba has a significant stake in Ant Group which was set to raise US$34.5 billion in the world’s largest IPO at the time, valuing the company at US$313 billion. On the eve of the IPO, the Chinese government blocked the deal and has been ramping up its crackdown on Big tech and potential monopolies since then.

The State Administration for Market Regulation (SMAR) announced that it is to investigate Alibaba over alleged monopoly practices including forcing merchants and sellers of goods to commit exclusively to Alibaba and not offer their products on other sites.

In a separate but interlinked development financial regulators in China are set to meet with Ant Group in the coming days. The PBOC the country’s central bank said in a statement released this morning that it urged Ant Group to: “comply with regulatory financial, antitrust, and consumer protection requirements”.

In January 2021, The Wall Street Journal reported that China’s regulators were trying to make Ant share personal data of its more than 1 billion users, including spending habits, borrowing behaviors, and payment histories. Jack Ma has resisted pressure from authorities. In late December 2020, China’s central bank criticized Ant for its “defiance of regulatory demands“. 

The mood in China has been changing of late and the authorities have let it be known that they are unhappy about the size and power of China’s tech giants.