Careless driving

Investors drive blind in China online auto deal

The $1.2-billion tie-up between JD.com and Bitauto has left investors driving blind. The Chinese internet group is buying a 25 per cent stake in the online car website. Yet two thirds of the payment - some $750 million - is not cash but in the form of commercial agreements, such as handing over parts of JD.com's website for Bitauto to operate. Though the tie-up may make strategic and financial sense, shareholders will have to take it on trust.

JD.com may be China's second largest e-commerce group, but has a long way to catch up with internet behemoth Alibaba, which has over 80 per cent of the online shopping market. An exclusive partnership with Bitauto, which operates an online car information portal as well as an auto financing platform, may therefore give the $35 billion group an edge. For the car website, gaining access to JD.com's 46 million monthly active customers should boost advertising revenue and transaction fees. The deal comes with a five-year non-compete agreement which will lock out the likes of Alibaba.

Swapping traffic for equity is not uncommon in China's booming internet sector. JD.com struck a similar agreement when it sold a 15 per cent stake to Tencent in return for the gaming giant's e-commerce assets. That deal also gave JD.com access to WeChat, Tencent's mobile messaging service. The lure of the mobile app's 468 million monthly active users may explain why Bitauto is also selling Tencent a 3.3 per cent stake in the company for $150 million.

The problem is that details are scarce. Neither JD.com nor Bitauto have disclosed how much revenue they expect the deal to generate. The e-commerce group won't even say what proportion of its sales currently comes from cars. The two companies could presumably have just struck a commercial agreement. Investors in both companies can only guess whether this option is more attractive.

Shareholders in Bitauto appear to be satisfied: the $4 billion company's New York-listed shares rose as much as 7 per cent after the partnership was announced on January 9. But without further financial explanation, investors are suffering from poor visibility.