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Unique: China's JD.com in talks to purchase a $ 1.5 billion brokerage stake – Sources

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© Reuters. FILE PHOTO: A sign from Chinese e-commerce company JD.com can be seen in its store in a mall in Shanghai

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By Julie Zhu

HONG KONG (Reuters) – JD (NASDAQ :). Com Inc is in talks to buy some or all of its stake in brokerage Sinolink Securities worth at least $ 1.5 billion, three people said, as the e-commerce major plans to bolster its financial services operations.

A deal to buy Sinolink's largest shareholder, Yongjin Group, would be the biggest bet in terms of the acquisition value of Beijing-based JD.com in the Chinese financial market of $ 45 trillion.

"The valuable broker license is key for tech giants to monetize their huge online traffic and grow into bigger businesses or else they'll have to route that traffic to other financial institutions," said one of the sources.

China's second largest e-commerce company by sales started talks with Yongjin late last year to buy part or all of its 27% stake, two of the people with direct knowledge of the matter said.

Based on Sinolink's market value of 39 billion yuan ($ 6 billion) on Thursday, its 27% share would be worth about 10 billion yuan, according to Reuters calculations.

Sinolink stock rose by its maximum daily limit of 10% on Friday afternoon after Reuters reported the discussions and reversed previous losses.

The potential deal stems from the fact that Chinese tech majors are keen to expand into financial services despite government crackdown on some parts of the sector.

JD.com generates most of its revenue from its core business in e-commerce and has few small financial licenses mainly offering online services such as consumer credit and wealth management products. It's long forayed into the fast-growing brokerage industry, valued at $ 1.4 trillion at the end of 2020, the same two people said.

Chengdu-based Sinolink was just outside the top 20 largest brokers in China based on operating revenues in 2019, official data showed. The business includes stock brokerage, stock and debt sponsorship and underwriting, financial advice and asset management.

China's two top tech giants, Alibaba (NYSE 🙂 Group and Tencent have stakes in the country's leading investment bank, China International Capital Corp. Alibaba has also invested in major broker Huatai Securities, while Tencent has backed Hong Kong-based online brokerage Futu Holdings (NASDAQ :).

According to Refinitiv, JD.com has only done two deals in the financial sector to date: its $ 550 million investment in an online automotive financing platform by Yixin Capital in 2016 and another investment in financial services from China Taiping Insurance Holdings worth undisclosed entity in 2018.

The JD.com-Yongjin talks were early and could change, the sources warned, who refused to be identified on confidential grounds.

JD.com, Yongjin, and Sinolink did not immediately respond to requests for comment.

Stricter regulation

For the privately held Yongjin, the potential business would fulfill its plan to divest its financial services business to circumvent new regulations for financial ventures, the third person said.

The new rules require a capital threshold for companies that operate more than two types of financial company. Should a company fail to meet the requirement for a one-year grace period, Beijing can force a sale of its shares.

In September, Guolian Securities announced that it would acquire Sinolink through a stock swap and purchase of shares in Yongjin. The merger was later scrapped due to questions about potential insider trading activity.

Yongjin was founded in 1995 by the late entrepreneur Wei Dong and is now run by his wife Chen Jinxia. According to its website, Yongjin has more than 400 billion yuan in assets, of which 30 billion yuan is owned.

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