China delivery giant Meituan raises $10 billion - a warchest for drones, self-driving cars

By Scott Murdoch and Yingzhi Yang

HONG KONG (Reuters) - Food delivery behemoth Meituan has raised $10 billion in a stock and convertible bonds sale, underscoring strong investor faith in the growth prospects of some Chinese tech firms despite a regulatory clampdown on the sector.

The Tencent-backed firm with a market valuation of $220 billion said it plans to use its new warchest to invest in autonomous delivery vehicles, delivery drones and other cutting-edge technology.

"Meituan will use most of the capital in updating its delivery system which currently relies on human drivers and will soon be unaffordable for the company as labour costs continue to rise in China, said Zhang Yi, head of consultancy iiMedia Research.

"It is making plans for its future in 5 to 10 years time," he added.

Analysts also expect the company to shore up its community group bulk buying service, Meituan Select, which has been growing in popularity. The service is part of its new initiatives division which has been reporting operating losses and is expected to continue to do so for the next few quarters.

In a record fundraising for the company, Meituan sold $6.6 billion in shares and gained roughly $3 billion in two-tranche convertible bonds. Another $400 million was raised by selling more shares to Tencent Holdings Ltd, its largest shareholder whose stake now stands at around 17%.

At least 300 investors placed orders to buy the stock with the top 20 orders taking up about two-thirds of the offer, said a source with knowledge of the matter.

Most demand came from global long-only funds, hedge funds and Chinese investors, said the source, who declined to be named as the deal details were not public.

Meituan declined to comment.

The robust demand comes as Chinese regulators crack down on technology giants for a range of violations from monopolistic behaviour to flouting rules for handling customer data.

These include a record $2.8 billion fine this month on Alibaba Group Holding Ltd for antimonopoly violations, while Meituan Select was among five platforms fined by China last month for improper pricing behaviour.

"Chinese regulators ... just intend to regulate them as per the law," said Zhang. "Financing access, for both giants and startups, hasn't changed and will keep being available."

Tencent last week raised $4.2 billion in a bond offering that was the company's second in a year..

Meituan, which competes with Alibaba-backed Ele.me among others, had an estimated 68.2% of the Chinese food delivery market in the second quarter of 2020, according to Trustdata.

Food delivery in China, which brings in more than half of Meituan's total sales, has grown by more than five times since 2016 to be worth over 650 billion yuan ($100 billion), according to iResearch. Meituan's services also include restaurant review sites and bike-sharing.

The company sold 187 million shares at HK$273.80 each, near the top end of the indicative range set on Monday. At $7 billion in equity sales, the deal is the sixth largest follow-on share sale by a Hong Kong-listed company, according to Dealogic data.

The convertible bond offers a zero coupon rate, meaning investors buy to secure future equity gains when it converts into stock. They would have their principal repaid at maturity if the option to convert into shares is not exercised.

($1 = 6.4950 yuan)

(Reporting by Scott Murdoch and Yingzhi Yang; Writing by Sumeet Chatterjee; Editing by Edwina Gibbs)