The logistics arm of Chinese e-commerce giant JD.com will kick off marketing of its Hong Kong initial public offering to retail investors early next week, with the firm seeking to raise US$3.4 billion to US$3.9 billion, according to a person familiar with the transaction.

JD Logistics' IPO is expected to be the second-biggest deal on the Hong Kong bourse this year, after Tencent-backed short video platform Kuaishou Tech raised US$6.2 billion in January in the biggest IPO globally year-to-date. Chinese internet and artificial intelligence giant Baidu raised about US$3.1 billion via a secondary listing in the city in March.

The IPO could value JD Logistics at about US$35 billion, said the person, who was not authorised to discuss the matter publicly. The listing on the main board is scheduled for May 28, the person said.

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At US$35 billion, JD Logistics' market capitalisation would exceed some of its peers.

ZTO Express, which counts Alibaba Group Holding as one of its shareholders, completed its Hong Kong secondary listing last September which valued it with a market capitalisation of HK$180.7 billion (US$23.3 billion). The Shanghai-based firm is already listed on the New York Stock Exchange.

Alibaba is the owner of the South China Morning Post.

The JD Logistics' IPO follows a blistering four months to begin the year, with investors betting serious money on IPOs. As of May 4, 35 IPOs raised about US$20.3 billion on the Hong Kong bourse, the equivalent of two-fifths of last year's total amount raised and a record high.

The company plans to use the proceeds to expand its warehouse, logistics and delivery networks; and to upgrade its technologies, such as its data analytics and algorithm capabilities.

Workers sort out packages for delivery at JD's Yizhuang Smart Delivery Station in Beijing. Photo: Simon Song alt=Workers sort out packages for delivery at JD's Yizhuang Smart Delivery Station in Beijing. Photo: Simon Song

JD Logistics was created in April 2017 as a separate business unit under JD.com. It uses the company's widespread fulfilment network to provide integrated supply chain and logistics services to third-party companies, including warehousing, transport, delivery and after sales services.

It operates over 900 warehouses, covering a combined gross floor area of about 226 million square feet (21 million square metres). It employs a team of more than 190,000 delivery personnel.

Still, the Beijing- based firm expects to report a bigger net loss for this year, after racking up losses of 2.8 billion yuan in 2018, 2.2 billion yuan in 2019 and 4 billion yuan in 2020.

"As we currently prioritise growth of our business and expansion of our market share over profitability, there can be significant fluctuations in our profitability profile in the near-to-medium term," the logistics firm said in its draft prospectus.

The spin-off of JD Logistics is the fourth listing by a company under the umbrella of JD Group in less than a year.

JD.com completed a US$3.8 billion secondary listing in Hong Kong in June 2020, followed by JD Health's US$3.5 billion listing in the city in December. Dada Nexus, JD Group's 46.5 per cent-owned delivery platform, listed on Nasdaq in June of last year.

Combined, these companies raised US$10.9 billion from investors, data from Refintiv shows.

"As JD Logistics succeeds in raising funds from the market for this money-losing business, it will shore up JD.com's capital. As its scale grows, the gross profit margin will likely increase," said Chelsey Tam, an analyst at Morningstar.

BofA Securities, Goldman Sachs and Haitong International are acting as joint sponsors on the transaction, while UBS is serving as a financial adviser.

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