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

Meituan, China's dominant food delivery platform, raised almost US$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 US$6.588 billion by selling additional shares at HK$273.25 (US$35.25) each, and sold about US$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.

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Food delivery couriers for Meituan stand with insulated bags during a morning briefing on a street in Shanghai. Photo: Bloomberg alt=Food delivery couriers for Meituan stand with insulated bags during a morning briefing on a street in Shanghai. Photo: Bloomberg>

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.

An unnamed delivery vehicle with Meituan's logo. Photo: Handout alt=An unnamed delivery vehicle with Meituan's logo. Photo: Handout>

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 US$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.

Wang Xing, chairman, CEO and co-founder of Meituan. Photo: Bloomberg alt=Wang Xing, chairman, CEO and co-founder of Meituan. Photo: Bloomberg>

Chinese equity and equity-linked (ECM) proceeds witnessed a record start to the year with US$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 US$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 US$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 US$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 emphasised 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.

This article originally appeared in the South China Morning Post (SCMP), the most authoritative voice reporting on China and Asia for more than a century. For more SCMP stories, please explore the SCMP app or visit the SCMP's Facebook and Twitter pages. Copyright © 2021 South China Morning Post Publishers Ltd. All rights reserved.

Copyright (c) 2021. South China Morning Post Publishers Ltd. All rights reserved.