Food-deliverer Meituan raises $10 billion as its follow-on stock sale fetches top price amid ravenous appetite for Chinese tech deals

22-Apr-2021 Intellasia | South China Morning Post | 7:03 AM Print This Post

Meituan, China’s dominant food delivery platform, raised almost $10 billion of additional funds overnight to finance its push into using autonomous vehicles and aerial drones in its operations.

The Beijing-based company raised $6.588 billion by selling additional shares at HK$273.25 (US$35.25) each, and sold about $3 billion of convertible bonds. The top-up shares placement, equivalent to 3.2 per cent of the company’s equity, was made at the top end of a marketing range of between HK$265 and HK$274 per share, according to a terms sheet seen by South China Morning Post.

Meituan’s shares and convertible bonds were multiple times oversubscribed, allowing the 10-year-old company to comfortably raise additional capital even as the entire internet and technology industry is placed under intense scrutiny by antitrust regulators for market dominance and corporate behaviour that potentially squeeze out fair competition. A Meituan subsidiary was fined 1.5 million yuan last month for breaching China’s price laws.

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Meituan’s blockbuster deal, coming close on the heels of the $15 billion divestment two weeks ago by Tencent Holdings’ biggest shareholder Prosus, underscores the appetite for Chinese technology shares, buoyed by what a person familiar with Meituan’s stock sale described as “a tsunami of deals and a wall of money coming out of China.”

Interest in the equity and bond offerings were so intense that the whole order book was filled by 5.30pm on Monday, overbought by 10.15pm and closed by 10.45pm. Banks orchestrating the deal created momentum in the book from the get-go by wall-crossing a small group of large institutions who were likely to participate, according to people familiar with the matter.

Investors are taking the view that the largest platforms will actually benefit from greater clarity in regulation and that merchants will continue to flock to the largest platforms to sell their wares to the widest number of consumers, said one investor that participated in the stock sale.

Roughly 300 institutions took part in Meituan’s offering, with the top 20 taking about 60 per cent of the deal, boding well for the aftermarket of the transaction, the people familiar said. Global institutional investors with long-only mandates, Chinese money managers and hedge funds all took a piece of the combination offering. Tencent, China’s largest social network operator and the biggest shareholder of Meituan with a 20 per cent stake, topped up its investments by snapping up $400 million in Meituan shares.

Shares of Meituan, the sixth-largest by weight on the Hang Seng Index, rose by as much as 2.4 per cent to an intraday high of HK$296 before retreating to close at HK$293.60 amid a flat market in Hong Kong after the placement. Hedge funds were in a tight squeeze as some had speculated that Tencent was going to sell Meituan shares, not buy them.

Meituan also sold about $3 billion worth of zero-coupon convertible bonds in two tranches, one due in 2027 and the other maturing in 2028. The conversion premium for both tranches was 57.5 per cent, one of the highest seen in recent deals.

The six-year convertible bonds priced at a negative yield-to-put or maturity of 0.182 per cent and come with an investor put in year four, while the seven-year convertible bonds priced at a 0.255 per cent yield and are puttable in the fifth year, according to the terms sheet.

Bank of America, Goldman Sachs, UBS and CLSA advised on the share placement. Bank of America and Goldman worked on the convertible bonds. After from the bragging rights of being associated with such a bumper stock sale, the banks will garner 50 basis points on trading in the stocks.

After the share placement is completed, Meituan and its co-founder Wang Xing are subject to a lock-up on their remaining shares of 90 days.

Meituan plans to use the proceeds for the research and development of autonomous-delivery vehicles, drones delivery and other innovations, as well as for general corporate purposes.

Chinese equity and equity-linked (ECM) proceeds witnessed a record start to the year with $72.2 billion raised in the first three months, a 142.8 per cent increase compared to the same period last year.

Follow-on share sales totalled $24.2 billion, up 126.9 per cent year-on-year. Chinese convertible bonds, or equity-linked issuances, grew 81.7 per cent from a year ago and amounted to $14.4 billion, the highest start since 2019, according to data provided by Refinitiv. High technology accounted for 30.7 per cent of China ECM activity, raising $22.1 billion in proceeds, a significant 621.9 per cent increase from a year ago.

Meituan reported a loss of 2.24 billion yuan (US$344.8 million) in the fourth quarter, swinging from a profit of 26.96 million yuan a year earlier as the company continued to invest heavily in its community group buying business, Meituan Select. Revenue rose 35 per cent to 37.9 billion yuan in the quarter ended December, beating the 36 billion yuan estimated by a Bloomberg analyst survey, and up from 28 billion yuan during the same period in 2019.

The company warned that continued investment in this segment would likely lead to losses in future quarters. Wang, who is also Meituan’s chief executive, acknowledged that community group buying was a drag on profits, but emphasized the company’s commitment to the model, calling it a rare opportunity for growth.

Meituan has recently sought to use community group buying to expand beyond China’s biggest cities. Meituan Select offers cheaper groceries for people who join together to buy in bulk.

Meituan’s operating losses from new initiatives segment, especially the community e-commerce business, will more than offset solid core earnings growth from its food delivery and the in-store, hotel and travel segments said Ying Wang, a senior analyst at credit rating agency Moody’s, which rates Meituan’s convertible bonds “Baa3″, its lowest investment grade ranking.

“We expect Meituan’s weak credit metrics to recover in 2022, when the community e-commerce business gains scale and narrows losses,” said Wang.


Category: China

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