Chinese delivery giant Meituan is seeking about $10 billion from the sale of new stock and convertible bonds as it works to strengthen its lead in meal delivery while expanding in new areas such as groceries and ride-hailing.
The nation’s third-largest internet company is selling about 187 million shares at HK$265 to HK$274 in a top-up placement, as well as raising $400 million from shareholder Tencent Holdings Ltd, according to terms of the deal obtained by Bloomberg News. It is also selling about $3 billion in zero-coupon convertible bonds.
The price range for the placement represents a discount of 5.3% to 8.4% to Monday’s closing price of HK$289.20. The convertible bonds are divided in two tranches, with Meituan selling as much as $1.48 billion in six-year notes and as much as $1.5 billion in seven-year paper, the terms show.
Meituan has embarked on an aggressive spending spree to try and shore up its lead in meal delivery while expanding into a host of adjacent areas from groceries to ride-hailing. Chief among its expansion efforts is a foray into the red-hot community commerce arena, where buyers in the same neighborhood enjoy bulk discounts of fresh produce.
“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.”
Meituan intends to use the proceeds from the stock and bond sales for technology innovations, including the research and development of autonomous delivery vehicles, drones delivery, and other cutting-edge technology, and general corporate purposes.
Meituan has warned it will remain in the red for several more quarters despite record revenues, underscoring the cost of competing against the likes of Alibaba Group Holding Ltd. in newer spheres of online commerce.
“During the announcement of their results, the company mentioned that they need to invest a lot for future development,” said Steven Leung, an executive director at Uob Kay Hian in Hong Kong. “The market remains very cautious, but with an 8% discount to the last closing price, and also with very detailed plans, this will be very well received by the market.”
China’s economic recovery has helped the world’s largest meal-delivery service increase orders, while its hotels and travel businesses benefited from a rebound in domestic travel when the country reined in the pandemic. That’s allowed Meituan to shift its focus to developing fast-growing new businesses while navigating heightened regulatory scrutiny.
Tencent is delving deeper into Meituan at a time global investors are souring on the Chinese tech sector. Meituan has lost some $123 billion of its value since a Feb. 17 high, pummeled by fears that Beijing’s crackdown on Jack Ma’s Internet empire will expand beyond Alibaba and Ant Group Co. to engulf other sector leaders like Tencent and Meituan.
Meituan has begun using self-driving vehicles for grocery delivery in the Chinese capital 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 Chinese city of Shenzhen.
Goldman Sachs Group Inc. and Bank of America Corp. are joint global coordinators and joint bookrunners for both the bond and equity offerings. UBS Group AG and CLSA are also joint bookrunners for the top-up placement.