FUND RAISING: Didi Kuaidi, Ant Financial in Mega-Funding Blitz

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Bottom line: Massive new fund raising by Ant Financial and Didi Kuaidi show there’s still lots of money looking to invest in emerging Chinese industries, though current valuations are overblown and likely to stagnate as China’s economy slows.

 

Ant Financial raises $3.5 bln

Every time I write that new funding seems to be cooling for Chinese tech companies, new reports emerge of yet another mega-funding. Two such new fund-raisings are in the headlines as the new week begins, led by a massive $3.5 billion new round for Alibaba-affiliated (NYSE: BABA) Ant Financial. The other mega-deal has homegrown car services provider Didi Kuaidi poised to raise $1.5 billion or more in new funding, as it vows to outspend an equally aggressive Uber for supremacy in the China market.

These 2 fundings show there’s still plenty of money chasing hot deals in China’s emerging industries, many in the tech and financial sectors. Two of my younger friends here have left more traditional media jobs over the last year to join the crowded field of private equity firms that are funding many of these deals, allowing hot companies like Didi Kuaidi and Ant to easily meet their targets and achieve very high valuations in the process.

The rationale behind such investing is relatively straightforward, since both Ant and Didi Kuaidi are well positioned to become leaders of sectors that should have huge potential in China. Uber has shown that location-based car service apps are hugely popular among average consumers, while Ant could easily emerge as a leading electronic payment services company similar to global giant Visa (NYSE: V).

But the valuations that some of these companies are attaining look quite inflated, especially when one considers that Didi Kuaidi is losing big money and Ant could also be loss-making. Accordingly, I do expect that many of these companies will see their valuations stagnate and even start to drop in the next year as China’s economy slows and a valuation bubble bursts.

All that said, let’s start this mega fund-raising round-up with Ant, whose $3.5 billion is the largest funding of this kind that I can ever remember seeing. Ant had originally sought to raise around $1.5 billion in only its second major funding round to date, but sharply boosted the figure after getting huge demand, according to new reports.

Like its first funding round, this one is coming mostly from domestic investors due to China restrictions on foreign investment in its financial services industry. The funding would value Ant at around $60 billion, up by a third from its first funding round at this time last year. That figure is quite large when one considers that Visa is worth about $180 billion, and MasterCard is worth $100 billion. While the 2 US companies have histories dating back half a century, Ant’s core Alipay electronic payments business is just a decade old.

Youthful Didi Kuaidi

Didi Kuadi is even younger, with a history of around 5 years. But that hasn’t stopped the company from attracting huge interest in its latest funding that should ultimately be worth at more than $1.5 billion. That would give the company a market value of $20 billion, according to the latest reports. (English article; Chinese article)

Those reports cite bankers and investors working on the deal saying the final amount could be as high as $1.9 billion, and could value Didi Kuaidi at as much as $25 billion. That valuation is half to a third as much as Uber, which was valued at $50-$70 billion according to reports at the time of its last major fund raising last year. By comparison, General Motors (NYSE: GM), the largest US car maker, is now worth about $45 billion.

Didi Kuaidi and Ant aren’t the only companies still able to raise big money at big valuations lately, though I stand by my view that this frenzy looks similar though not identical to the dot-com bubble of the late 1990s. The big similarity is that most of these Chinese companies are losing big money. But the big difference is that they also have viable business models that could someday be quite profitable. Those 2 realities lead to my earlier conclusion that these companies could indeed emerge as industry leaders one day, though they are probably a bit overvalued at the moment.

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