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SummaryMost relevantAll NewsAnalyst Reco.Other languagesPress ReleasesOfficial PublicationsSector newsMarketScreener Strategies

JD.com Boss Gets Big Options Awards Ahead of Unit Listing

11/18/2020 | 05:28am EDT

By Yifan Wang

Chinese e-commerce group JD.com Inc. gave billionaire boss Richard Liu options to buy 2% stakes in its health and logistics units, an award that could enable him to accumulate holdings worth more than $1 billion.

In an earnings report Monday, JD said Mr. Liu was granted options for shares in the two subsidiaries, which vest over six years. Mr. Liu, who is also known as Liu Qiangdong, is JD's founder, chairman and chief executive.

"The grants were awarded to Mr. Liu to recognize his significant contributions to the development of JD Logistics and JD Health and to motivate him to continue leading the future success" of those businesses, the company said.

Mr. Liu is one of China's richest men, with an estimated $23.5 billion fortune, according to China's Hurun Research Institute. At JD, which competes with Alibaba Group Holding Ltd. in China's booming e-commerce market, he is paid almost entirely in stock options.

JD is preparing to raise some $3 billion by listing its telemedicine subsidiary, JD Health International Inc., in Hong Kong. In December 2019, Reuters reported that JD Logistics held early talks with banks about an overseas initial public offering that could raise $8 billion to $10 billion.

Valuation estimates from several investment banks seen by The Wall Street Journal range from $20 billion to $30 billion for JD Health--and from $38.5 billion to $55.8 billion for JD Logistics--meaning 2% stakes could be worth roughly $1.2 billion to $1.7 billion.

Options give holders the right to buy shares at a fixed price. JD didn't provide any exercise prices for the options--meaning it isn't possible to estimate their value to Mr. Liu--and didn't say if their vesting was dependent on any performance goals.

Jamie Allen, secretary-general of the Asian Corporate Governance Association, a nonprofit organization in Hong Kong, questioned why Mr. Liu needed to be incentivized in this way.

"Surely he will work hard and continue to lead the companies, given he's the controlling shareholder of the parent company," Mr. Allen said. "If I was a shareholder, I wouldn't be happy."

Mr. Allen said a lack of information about the exercise prices was also a "big red flag."

John Roe, a partner at communications and investor-relations firm Joele Frank, Wilkinson Brimmer Katcher, who has a focus on executive compensation, said the lack of details on exercise prices didn't concern him greatly, since companies preparing IPOs are generally more reserved about what they disclose.

However, he said the apparent lack of performance conditions meant Mr. Liu "gets all of the awards if he sticks around." He said that made the typical case for options--to keep executives focused and motivated to perform--less compelling in this instance.

JD declined to comment beyond the detail provided in its earnings release.

Mr. Liu keeps tight control of JD.com with shares that give him extra voting power and with an unusual provision that means the board can't hold an official meeting without him.

Highflying tech companies often reward founders generously. Some have offered hundreds of millions of dollars in stock-based awards, often tied to IPOs.

In 2018, Chinese smartphone maker Xiaomi Corp. gave founder and Chief Executive Lei Jun about $1.5 billion worth of shares before it listed in Hong Kong.

In 2014, Mr. Liu received a large stock award before JD went public in New York, which was worth about $900 million based on the company's IPO price.

The following year, JD struck a 10-year pay deal with Mr. Liu. It pays him a token 1 yuan--or about 15 cents--a year and no cash bonus while giving him options for JD shares. His remaining options are highly valuable at current market prices, allowing him to buy JD stock at $33.40 per American depositary receipt. JD's ADRs closed Tuesday at $86.97.

In the three years to 2019, JD booked the equivalent of about $80.5 million in expenses for these awards to Mr. Liu and about $1.55 billion for firmwide share-based compensation.

Mr. Liu was arrested in the U.S. in 2018 on suspicion of sexual assault and released a day after. He denied any wrongdoing and prosecutors declined to press charges. In April 2019, the college student who accused him of sexual assault filed a civil lawsuit, seeking damages and a jury trial.

Write to Yifan Wang at yifan.wang@wsj.com

(END) Dow Jones Newswires

11-18-20 0527ET

Stocks mentioned in the article
ChangeLast1st jan.
ALIBABA GROUP HOLDING LIMITED 0.73% 168 Delayed Quote.-27.81%
JD.COM, INC. 0.48% 81.42 Delayed Quote.-7.37%
UNITED STATES DOLLAR (B) / CHINESE YUAN IN HONG KONG (USD/CNH) -0.03% 6.432 Delayed Quote.-0.97%
XIAOMI CORPORATION 0.71% 21.25 End-of-day quote.-35.99%
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Net income 2021 6 989 M 1 086 M 1 086 M
Net cash 2021 119 B 18 458 M 18 458 M
P/E ratio 2021 115x
Yield 2021 -
Capitalization 813 B 126 B 126 B
EV / Sales 2021 0,73x
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Nbr of Employees 320 000
Free-Float 69,6%
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Last Close Price 523,86 CNY
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Spread / Average Target 19,2%
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Qiang Dong Liu Chairman & Chief Executive Officer
Lei Xu President
Ran Xu Chief Financial Officer
Nan Li Director-Strategy & Operations
Cheng Feng He Chief Compliance Officer
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