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JD.com’s Latest $500M Investment Is All About the Warehouse

JD.com’s infrastructure management unit has agreed to buy a controlling stake of China Logistics Property Holdings (CNLP) for 3.99 billion Hong Kong dollars ($513 million). The e-commerce giant further seeks to ramp up its fulfillment capabilities across China and cater to rising demand amid supply chain constraints, which include lockdowns within the country’s ports and logistics hubs.

In a statement to the Hong Kong Stock Exchange, JD.com and JD Property said they would be “compelling” strategic partners for the Chinese warehouse developer and manager, in that they could capture various attractive growth opportunities and unlock value through the combination of their businesses, capabilities and resources. A subsidiary of JD.com, JD Property is the wing that invests, develops and manages logistics infrastructure, manufacturing hubs, data centers and scientific innovation offices across China.

“As JD Property and CNLP share similar business models, JD.com and JD Property believe that attaining 50 percent or more of the voting rights in CNLP will facilitate the integration of the resources of CNLP and JD Property, which will in turn further enhance the business growth and financial prospects of CNLP and JD Property,” the statement read.

With CNLP in the fold, JD.com would have another 65 logistics parks added to its arsenal as well.

The move comes only seven months after JD.com made its first investment in CNLP, when it took a minority stake of 9.4 percent for $144.5 million. At the time, CNLP had attracted the investment to help reduce its debts and build more logistics parks across China, but JD’s funding appears to have been so influential that the online retailer and fulfillment network might soon be taking it over entirely.

CNLP chairman and executive director Li Shifa will sell his 26.38 percent stake that he owned through his investment firm, Yupei International Investment Management.

Upon the purchase’s completion, JD Property will own approximately 37 percent of the issued share capital of CNLP. Since this equity holding crosses a 30 percent ownership threshold, Hong Kong takeover codes mandate that JD Property must launch a tender offer for CNLP.

If JD Property’s offer is accepted across 90 percent of shares within four months, CNLP will become a wholly-owned subsidiary of JD Property and the company will apply to de-list CNLP shares from the Hong Kong Stock Exchange.

Assuming that all the bonds are converted and the offer is accepted in full, the maximum price of a full takeover would be 16.4 billion Hong Kong dollars ($2.1 billion).

The deal reflects the increasing competition to dominate e-commerce in China and the need to deploy more warehouses and fulfillment centers throughout the nation. Online retail is still expected to jump at a clip of 10 percent per year through 2023 to RMB 15.1 trillion ($2.35 trillion), according to iResearch. China’s National Bureau of Statistics highlighted that online penetration has reached 24.9 percent of total retail.

In kind, JD Logistics Inc., the e-commerce giant’s delivery arm, saw a 45.7 percent jump in revenue in its second quarter to approximately $4 billion. The unit, which split into its own separate public entity earlier this year, currently operates more than 1,200 warehouses with an aggregate gross floor area of 23 million square meters. The fulfillment provider has over 1,000 air cargo routes and operates on more than 300 railway routes, with more than 200,000 in delivery personnel to cover the ground.

JD.com’s 38 “smart mega warehouses” across China include a fully automated, unmanned center in Shanghai.

Across the company, fulfillment expenses, which primarily include procurement, warehousing, delivery, customer service and payment processing, increased by 22.5 percent in the second quarter to RMB 14.6 billion ($2.3 billion). The company has been aggressive in its logistics investments on the whole, spending $800 million on on-demand delivery firm Dada Nexus Limited to take majority ownership (51 percent) of the company.

But it doesn’t appear the Chinese e-comm giant is content with only staying on the Mainland. In March 2010, JD Property got a massive financial boost of its own, securing $700 million in financing from Hillhouse Capital and Warburg Pincus. Upon getting the funding, JD Property said in a statement that it was seeking overseas opportunities for growth. Collaborating with local partners, it is developing logistics and industrial infrastructure in Southeast Asia and Europe, to help Chinese clients and local enterprises expand their businesses.

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