FUND RAISING: Didi Kuaidi, Meituan Signal End of Deal Train

Bottom line: Tencent’s new bond issue and Meituan’s $1 billion fund-raising plan are likely to mark the end of a wave of massive capital raising, as investors pause until China’s financial markets stabilize.

Meituan eyes new $1 bln fund-raising

China’s stock market turmoil may have brought an abrupt end to the booming IPO markets in Shanghai, Shenzhen and Hong Kong, but it hasn’t completely killed investor appetite for hot Internet companies. That’s the conclusion one could draw based on the latest series of mega-deal announcements, including a record $2 billion fund-raising by hired car services app operator Didi Kuaidi.

That fund-raising was formally announced the same day that reports emerged saying leading group buying site Meituan was aiming to raise another $1 billion, less than a year after it raised $700 million. Last but not least, social networking giant Tencent (HKEx: 700) is preparing to raise $100 million of its own, announcing it has just priced the latest tranche of bonds in a previously announced program to issue up to $10 billion in new debt.

These 3 massive new fund-raisings amid one of the world’s worst market downturns in years may look a little contradictory, since investors don’t typically plow more money into the market during such times. But it’s important to remember that the Didi Kuaidi and Tencent deals were initiated long before the ongoing bloodbath that has seen the main Shanghai composite index fall more than 30 percent since early June.

The only new deal in the trio is Meituan, and I have serious doubts about whether that funding will get completed. Even if it does, it’s unlikely to reach the $1 billion target. When the history books are written, this string of deals could easily become the last major fund-raisings before the onset of a frosty period that could last for the next 12 months or possibly even longer.

Let’s begin with a quick look at the Didi Kuaidi deal, which I won’t spend too much time on since I’ve written about it several times already. (previous post) The most noteworthy point is that Didi Kuaidi was originally aiming to raise $1.5 billion, but then upped the figure after getting very strong demand. (English article; Chinese article)

Move Over, Facebook

This latest fund raising figure marks a new record for a mobile Internet company, beating out the previous $1.5 billion held by Facebook (Nasdaq:FB), and gives Didi Kuaidi a war chest of $3.5 billion in cash. The company’s chief is quoted saying the money will be used on product development. But previous reports have indicated Didi Kuaidi is also looking to go abroad and may even be targeting the US.

Next let’s look at Meituan, which is returning to capital markets just 8 months after it raised $700 million (previous post), an impressive figure at the time but one that has been eclipsed several times since then. (Chinese article) If Meituan can get the terms it is seeking, the new funding would value the company at $15 billion — roughly double what it was worth during the last fund-raising round late last year.

These latest reports are almost certainly coming from Meituan’s own bankers, and if the market plunge continues I seriously doubt it will be able to get the terms it’s seeking. Two of China’s top 3 Internet companies have seen their stocks actually fall since the beginning of the year, and the only gainer, Tencent, has risen about 20 percent. So for Meituan to think its value has doubled over that period seems a bit unrealistic.

Lastly there’s Tencent itself, which has just announced its pricing for $100 million in new medium-term bonds. (company announcement) Timing for the announcement wasn’t too good, as Tencent’s stock slid nearly 7 percent in the latest trading session amid a major plunge in Hong Kong. This is the latest tranche in the company’s previously announced program to issue up to $10 billion in debt, and the actual sale is set to occur on July 15. I expect that sale will occur without any major problems, though it could be a while longer before Tencent or any other Chinese Internet firm attempts a similar bond offer.

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