Alibaba-led consortium and Jiangsu government set to strike deal for Suning

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A consortium led by Alibaba Group Holding Ltd. and the provincial government of Jiangsu are on the verge of reaching a deal to buy a stake in the retail arm of the Suning Empire from Chinese billionaire Zhang Jindong, according to people familiar with the matter, the latest domino to fall in the Beijing’s effort to clean up its heavily indebted conglomerates.

The unit, Suning.com Co., could make an announcement as early as this week, said the people, who asked not to be identified because the information is private. Zhang will no longer have control of the company after the deal, people said, marking the end of his career as a leading entrepreneur that has led Suning in a range of businesses, including ownership of the company. football team of Inter Milan.

Hong Kong-listed Alibaba shares rose 1.6% on Wednesday morning, while its U.S. certificates of deposit closed largely unchanged at $ 229.44 in New York on Tuesday. Suning.com’s 5.5% yuan bond rose 1.9% to 99.31 yuan, briefly reaching the highest since August last year.

Suning.com, one of China’s largest retailers of home appliances, electronics, and other consumer goods, had a market value of around 52 billion yuan ($ 8 billion) before trading stopped June 16. It’s been struggling for some time: Retail was weakened by slowing spending during the pandemic, and concerns about its cash flow escalated in September, when Zhang waived his right to a payment of 20 billion yuan from China Evergrande Group, the world’s most indebted real estate developer.

Shares fell to nearly eight-year low in Shenzhen earlier this month after a Beijing court froze 3 billion yuan of shares held by Zhang – representing 5.8% of Suning .com, and while the creditors agreed to extend an obligation for Suning Appliance Group Co., which is owned by Zhang and its co-founder Bu Yang.

China is using the strengthening economy and stable financial markets to harden its corporate sector, discouraging the kind of reckless debt-fueled expansion that has inflated some companies to dangerous size. The emergence of such swollen empires created a threat to the financial system as well as a challenge to President Xi Jinping’s grip on power.

Zhang’s Suning was a classic example as he dove into an array of industries including real estate, finance and sports, including a controlling stake in Inter Milan for € 270m in 2016. The wave of acquisitions was characteristic of a group of Chinese conglomerates, including HNA. Group Co. and Dalian Wanda Group Co., which have now been forced to withdraw their investments or come under government control.

Negotiations are ongoing and a deal could be further delayed or collapsed, the people said. A Suning representative declined to comment, while Alibaba and Jiangsu government officials did not immediately respond to requests for comment.

For its part, Alibaba is acting after a months-long investigation into alleged monopoly behavior, which resulted in it paying a record fine of $ 2.8 billion earlier this year. The e-commerce giant already has a 20% stake in Suning.com, a long-time ally in its broader physical retail strategy.

Zhang, who founded Suning in 1990, puzzled investors when he waived his right to the Evergrande payment. The move, which helped his friend and Evergrande chairman Hui Ka Yan save his own business, increased pressure on the retailer’s cash flow.

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