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Tuesday, April 20, 2021, 16:01
Meituan 'raises US$10b to fight Alibaba in grocery arena'
By Bloomberg
Tuesday, April 20, 2021, 16:01 By Bloomberg

This undated file photo shows a deliveryman of Meituan-Dianping, the country's largest on-demand service platform, delivering food in Beijing. (PHOTO PROVIDED TO CHINA DAILY)

Chinese mainland delivery giant Meituan has raised US$9.98 billion from a record top-up placement and a convertible bonds sale as it doubles down on efforts to fight the likes of Alibaba Group Holding Ltd in newer areas such as online groceries.

The nation’s third-largest internet company has sold 187 million shares in a top-up placement at HK$273.8 each, near the top end of its marketed range, and also raised US$400 million from shareholder Tencent Holdings Ltd., according to terms of the deal obtained by Bloomberg News. The US$7 billion new stock issuance is the largest-ever such sale by a Hong Kong-listed company, data compiled by Bloomberg show. Meituan has also sold US$2.98 billion in zero-coupon convertible bonds.

The nation’s third-largest internet company has sold 187 million shares in a top-up placement at HK$273.8 each, near the top end of its marketed range, and also raised US$400 million from shareholder Tencent Holdings Ltd, according to terms of the deal obtained by Bloomberg News

Meituan’s shares were volatile in the morning session in the Hong Kong Special Administrative Region, trading up 1.2 percent as of 10:28 am local time after falling as much as 1.8 percent earlier. The placement price represents a discount of 5.3 percent to the stock’s closing price Monday. The convertible bonds are divided in two tranches - US$1.48 billion six-year notes and US$1.5 billion seven-year paper, the terms showed.

The stock and bond sales come as Meituan grapples with the cost of competing against the likes of Alibaba and Pinduoduo Inc in newer spheres such as community e-commerce and online groceries. The company has warned it will remain in the red for several more quarters despite record revenues as it spends heavily on new initiatives.

Meituan intends to use the proceeds from the offerings for technology innovations, including the research and development of autonomous delivery vehicles, drones delivery, and other cutting-edge technology, and general corporate purposes, the terms showed.

ALSO READ: Meituan eyes mapping, driverless vehicles to cut delivery costs

“After this placement, some short-term investors could sell the stock and shares could trade in a range of HK$250-HK$300 for a while,” said Paul Pong, managing director at Pegasus Fund Managers Ltd. “In the medium to longer term, online platform operators like Meituan and Tencent still have a solid growth outlook.”

Community buying is one of Meituan’s chief expansion areas, where buyers in the same neighborhood enjoy bulk discounts on fresh produce. But the firm faces entrenched competition from other Internet giants.

All three main ratings agencies lowered their outlook on Meituan after it reported earnings last month, with S&P Global Ratings and Moody’s Investors Service saying that its large investments in community e-commerce would come at a heavy cost, generate negative free cash flow and dampen earnings.

Meituan’s focus on developing fast-growing new businesses comes as the mainland’s economic recovery has helped the world’s largest meal-delivery service increase orders, while its hotels and travel businesses have benefited from a rebound in domestic travel when the country reined in the pandemic.

The company has begun using self-driving vehicles for grocery delivery in Beijing since the COVID-19 outbreak last year, with at least 15,000 orders being completed so far, Wang Xing, the company’s chief executive officer, told analysts during a conference call in March. Wang said Meituan is also experimenting with how to deliver food using drones in the southern mainland city of Shenzhen.

READ MORE: Meituan surges to highest since IPO after surprise profit

“They are going into new areas including group purchases and those need a lot of capital and they need a war chest to compete,” said Kerry Goh, chief investment officer at Kamet Capital Partners Pte. “Valuations are still pretty decent compared to a year ago.”

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