China's Meituan raising $10 billion to bolster technology research

HONG KONG: Chinese food delivery giant Meituan launched a deal on Monday to raise up to $10 billion in shares and convertible bonds to help fund the research and development of autonomous vehicle and drone delivery services.

Meituan, whose services also include restaurant reviews and bike sharing, will raise $7 billion in the equity sale and sell $3 billion in convertible bonds, according to a term sheet seen by Reuters.

The company declined to comment.

Meituan's move comes as China's tech giants face increasing regulation due to concerns they have grown too rapidly, built market power that stifles competition and hurt consumer rights.

The tougher environment, though, has failed to dampen the desire among the companies in the sector to raise cash.

Tencent Holdings Ltd, which is the main backer of Meituan, last week raised $4.2 billion in a bond which was the company's second in a year.

Meituan has been rapidly expanding Meituan Select, which enables communities to set up groups for bulk buying. The new business relies heavily on subsidies and the company's earnings swung to a loss over the quarter ended December.

"Meituan has been burning money in Meituan Select ... But it looks like Meituan would not like to withdraw from the severe competition," Aequitas Research analyst Ming Lu, who publishes on Smartkarma, told Reuters when asked about Meituan's need to raise cash.

Meituan's equity placement will be priced between HK$265 and $HK274 per share, which is a 5.3% to 8.4% discount compared to its closing price Monday of $289.20. Selling 187 million shares in that price range would raise $6.4 to $6.6 billion.

Meituan stock slipped 0.34% Monday before the deal was launched. The company's shares are down 1.8% so far this year.

Meituan's biggest shareholder, Tencent, has agreed to subscribe for a further $400 million worth of stock to take the total size of the equity portion of the deal to up to $7 billion.

The convertible bond has a zero coupon rate, which means investors buy the bonds for the prospect of securing future equity gains when the instruments convert into stock. They would also have their principal repaid at maturity if the option to convert into shares is not exercised.

In the term sheet, Meituan said the cash raised would be spent on technology innovation, including the research and development of autonomous delivery vehicles and drones.

Meituan said on Monday it had begun to pilot autonomous delivery vehicles in the outskirts of Beijing that achieved level 4 autonomous driving, meaning they can operate without a human driver under certain conditions.

The company has been testing autonomous delivery vehicles in the area since last year and has accomplished 35,000 orders through autonomous delivery, Meituan said in a statement.