Fix and Boohoo, bankers close to the deal
said.
Management believes Farfetch can sustain
its 30% revenue share of products sold on
the platform, in part because of the high
gross margins on luxury goods.
Though the company lost nearly US$50m
at the adjusted Ebitda line in the first six
months of 2018 (a margin of –22.6%), it
expects to generate 30% Ebitda margins over
the long term as the business scales up and
its top-line grows faster than its cost base
and with limited capex requirements.
The roadshow presentation includes
recorded endorsements from Conde Nast
artistic director and fashion maven Anna
Wintour and Gucci chief executive Marco
Bizzari, the former comparing Farfetch to
Uber and Apple in its disruptive impact on
its industry.
Though Farfetch did not elaborate on why
it has chosen to go public in the US rather
than Europe, bankers said the US’s broader
technology investor base was key to the
decision.
Farfetch’s IPO build-up has been
complicated by scandal at China’s JD.com,
its biggest shareholder behind founder Jose
Neves and its key strategic partner in China.
JD.com’s chief executive, Richard Liu, was
arrested in Minnesota over the Labor Day
long weekend on suspicion of criminalsexual misconduct, a matter that is disclosed
in Farfetch’s IPO filing.
Liu, who was later released, is also a
director of Farfetch.
(See related story on this page.)ENQUEST PLANS £107m RIGHTS ISSUEUK-based oil and gas company ENQUEST is
planning a £107m rights issue to fund a
US$300m oilfield acquisition and the
drilling of two new wells, it announced
alongside its half-year results on Friday.
The rights issue involves 508.3m shares
offered on a 3-for-7 basis at 21p each,
representing a 37% discount to TERP of 33p.
Enquest shares closed on Wednesday at 38.60p.
Pricing for stock trading in Sweden is due
to be announced on September 25.
Double A, owned by Enquest’s chief
executive Amjad Bseisu’s extended family,
and trustees of Enquest’s employee benefits
trust, have irrevocably committed to
subscribe to their proportionate share of the
rights issue, representing an aggregate 13%
of the current share capital, or 154.8m
shares. Double A currently owns 8.7% of the
company, while the employee benefits trust
owns 4.4%.
The rest is fully underwritten by join
bookrunners JP Morgan and Bank of America
Merrill Lynch, for a fee of 2.7%.Dealings in new shares on the LSE, and
dealings in the Swedish subscription rights
will commence on October 2. The
subscription period will end on October 16,
and results will follow on October 22.
Enquest’s share prices fell 13% after the
news, closing on Friday at 33.45p, down
from Thursday’s close of 38.60p.
Enquest is raising the money to increase
its interest in the North Sea-based Magnus
oilfield, currently majority owned by BP. It
first acquired a 25% interest in the field in
2017, and the deal to acquire the remaining
75% is expected to wrap up in Q4 2018.AMERICAS
UNITED STATES
ECM GETS BUSY BUT MARKETS WILTBankers have planted the seeds for a hectic
period in US ECM over the next few months
but tougher market conditions and a
calendar bulging with event risk is
threatening to upset deal flow.
As expected, no IPOs of note priced in the
shortened return week from the summerInternational Financing Review September 8 2018 91EQUITIES EMEA
In the two days of trade following the arrest,
JD.com has lost US$7.2bn or 16% of its market
value, also hurt by fears that the case will turn
customers away from its website.
Liu owns about 16% of JD.com’s stock.
But his power is amplified by weighted
voting rights that give him nearly 80% of the
company’s votes and the provision that bars
the board from making binding decisions
unless Liu is present, either in person or by
teleconference, so long as he is a director.
If he is not present, the board can make
decisions only with his permission or if he is
sick. The clause explicitly excludes this being
allowed during “any confinement against his
will”, suggesting he could maintain control
even in jail.
“We can’t think of any other company that
has such articles,” said Jamie Allen, general
secretary of the Asian Corporate Governance
Association.
“I find it baffling. Liu already has weighted
voting rights, so he can control the company:
he is the founder. I don’t think any of the board
would dare make a decision without him, so
why would he need to do this?” said Allen.
JD.com board members did not respond
to requests for comment. The company
declined to comment on questions concerning
governance and its initial response to Liu’s
arrest.WHO IS NUMBER 2?
Other critics of the company have pointed to
the difficulties in identifying Liu’s strongest
lieutenants, should he be unable to continue
leading the company.
“You see only Richard Liu’s footprints all
over the company. That’s why you look at the
senior management team – who is No.2? Can
you name the No.2 in JD?” said Wong Kok Hoi,
founder and CIO of APS Asset Management,
who presented his arguments for shorting
JD.com at a hedge fund conference in Hong
Kong in May.
The post of chief operating officer at
JD.com has been vacant since Shen Haoyu,
who had been in the role since 2011 and was
in charge of the firm’s main JD Mall business,
stepped back from the job in 2016. He has
since left the firm and moved to Hillhouse
Capital.
Jacob Williams, corporate governance
manager for the Florida State Board of
Administration, which oversees pension assets
including about 158,000 JD.com shares, said
Liu’s tight control of the company means more
risk for outside investors when problems crop
up.
“It really does create restrictions for minority
shareholders in terms of what options we have
available,” he said, such as making it harder to
remove the CEO or to change directors.Little would change unless larger JD.com
shareholders weigh in, Williams said. “It
definitely helps for the company to hear
from shareholders. It will take more than a
few shareholders to weigh in, in order for the
message to get through,” he said.
Funds with the largest stakes in JD.com
include the Dodge & Cox International Stock
Fund and Vanguard funds including the
Vanguard Emerging Markets Stock Index
Fund. Representatives for both firms declined
to comment on Liu’s arrest or JD.com’s
ownership structure.
A representative for another large investor,
the Canada Pension Plan Investment Board,
said via e-mail: “We will not comment beyond
to say as with our portfolio in general; we
evaluate consistently.”
JD.com is a serial investor in tech companies
and a regular visitor to capital markets,
including its first ABS this year. It holds a
13.94% stake in UK-based online fashion
retailer FARFETCH, which launched its US IPO
last week. Liu is a non-executive director
of Farfetch and his arrest is cited in the risk
factors in the IPO prospectus with a view that
any charges could result in negative media
coverage that may damage Farfetch’s brand.
Additional reporting by Ross Kerber, Cate
Cadell, Alun John and Kane Wu
Jennifer Hughes, Adam Jourdan10 Equities and SE 2250 p81-98.indd 91 07/09/2018 20:19:32