JD.com’s shares plunged the most on record in the US on Wednesday, extending a decline and putting CEO Richard Liu Qiangdong’s stock options under water, as the market waits to see if prosecutors will bring charges against the billionaire founder, who was arrested for suspected rape last Friday before being later released.
The Beijing-based e-commerce company’s American depositary receipts (ADRs) tumbled 10.6 per cent in Nasdaq trading to US$26.30, the steepest percentage fall since its IPO on May 21, 2014. The shares have declined 16 per cent, or US$5 per ADR, since resuming trading on Tuesday after the Labour Day public holiday.
The share price plunge could prove expensive for Liu, who receives virtually all of his compensation in shares. In May 2015, JD.com’s board approved a 10-year compensation plan under which Liu receives a nominal salary of 1 yuan per year and a zero cash bonus but was granted an option to acquire 26 million class A ordinary shares in the company.
The exercise price is US$33.40 per ADR – about US$7 above the current market price – subject to a 10-year vesting schedule with 10 per cent of the award vested on each anniversary of the grant date, according to information in the company’s latest annual report which was confirmed by JD.
“The shares have fallen as a direct result of Liu’s alleged sexual misconduct,” said Li Yi, chief fellow at the Shanghai Academy of Social Sciences. “The share price could rebound though if Liu is not charged, on the back of its business operations.”
The company is the worst-performing member in the past six months on the Nasdaq 100 Index, a gauge that includes Amazon.com, Apple Inc and Alphabet Inc. Even before the arrest of Liu, JD.com’s shares had declined around 28 per cent this year as China’s second largest e-commerce player battles rising competition at home and overseas. JD.com’s net loss from continuing operations surged to 2.2 billion yuan (US$319 million) in the quarter ended June 30, about 8 times larger than analysts expected, and the company warned that investments in technology and logistics could affect profit forecasts for the rest of the year.
The e-commerce giant is squaring off against Alibaba Group Holding’s Lazada and Amazon in Southeast Asia, while facing rising pressure from rivals including Alibaba and newly-listed Pinduoduo Inc. at home. JD’s Chief Financial Officer Sidney Huang used the August earnings call to flag 2018 as “an investment year” for the online retailer’s logistics division, as it builds more warehouses and acquires new technologies.
Meanwhile, several US law firms are considering bringing class-action lawsuits against JD.com, accusing the company of failing to disclose information pertinent to the arrest of Liu. The 45-year-old was arrested on a rape accusation, a first-degree felony if he is charged with the crime, according to police records. No charge has been filed against Liu though and the matter is still under investigation by the sex crimes division of the Minneapolis Police Department.
Liu returned to China following his release and showed up at JD.com’s Beijing headquarters on Tuesday morning to sign a strategic partnership with Chinese textile manufacturer Ruyi Group. JD.com released a group photograph showing a smiling Liu flanked by Qiu Yafu, chairman of Ruyi, and executives from both companies.
JD competes in e-commerce with Alibaba Group, parent company of the South China Morning Post.