Thursday Tech Briefing: Meituan-Dianping, Xiaomi, Ofo
DEALS AND FUNDRAISING
1. Meituan-Dianping to File for Hong Kong IPO on Friday, Sources Say
What: China’s largest group-discount platform and on-demand online services provider is set to file on Friday for an initial public offering (IPO) in Hong Kong, sources told Caixin. Meituan has hired Goldman Sachs, Morgan Stanley, Bank of America Merrill Lynch, and China Renaissance as its IPO underwriters. The company was valued at $30 billion in its latest funding round in October.
Why it’s important: The company faces formidable rivals in key businesses, as it competes with Alibaba-backed entities in food delivery and with Didi Chuxing in ride hailing. It also expanded into the cash-burning business of bike sharing with the acquisition of Mobike in April. An IPO would give Meituan the capital it needs to compete in these businesses.
Big picture: The size and price of Meituan’s IPO is unknown. But it is expected to be another blockbuster listing in Hong Kong by a rising Chinese tech giant, following smartphone-maker Xiaomi Inc., which is expected to raise about $6.1 billion in Hong Kong and on the mainland in early July. (Source: Caixin)
2. Xiaomi Brings in at Least Four Cornerstone Investors, Lowers Valuation
What: Following Xiaomi’s decision to postpone its issuance of Chinese depositary receipts (CDR) until after its Hong Kong IPO, the smartphone maker is lowering its valuation range and financing scale, sources told Caixin. The company is now looking to raise up to $6.1 billion within a valuation range of $55 billion to $70 billion. Xiaomi was previously reported to be aiming to raise $10 billion at a valuation of no less than $61.2 billion.
Xiaomi is in the process of bringing in cornerstone investors. Four cornerstone investors have been confirmed: U.S. chipmaker Qualcomm Inc, Chinese express delivery company S.F. Holding Co Ltd, domestic telecom service provider China Mobile Ltd and state-run conglomerate China Merchants Group Ltd. Earlier reports that banks’ asset management units were on the list have been confirmed as false.
Why it’s important: Investors have cast doubt over Xiaomi’s high valuation, with one of the main issues being whether it should be valued as a hardware maker or an internet company. Xiaomi’s recent decision to delay its CDR issuance was likely a result of regulators’ concern over valuation.
Big picture: Xiaomi’s IPO will be the largest since the 2014 debut of Alibaba Group Holding Ltd. The company had also been expected to be the first tech giant testing the waters of CDR issuance, a pilot program that allows selected offshore-listed tech companies to list directly on the mainland. (Source: Caixin, link in Chinese)
3. Bike-Sharing Company Ofo Trials Price Hikes
What: In order to reach its goal of profitability, bike-sharing company Ofo has been trialing price hikes in selected cities in China. The company is in the process of determining where and how pricing changes will take place, Ofo told Caixin. The trial program has currently been rolled out for 0.5% of users.
Why it’s important: The price adjustment program demonstrates Ofo’s determination to stop burning cash and cease its dependence on its two giant investors, Didi Chuxing and Alibaba. Earlier in May, Ofo set a target to turn its earnings before interest, taxes, depreciation and amortization (EBITDA) positive in the 100 days following May 7.
Big picture: Most Chinese bike-sharing services are currently priced at 1 yuan ($0.15) per ride. The model, however, has been unable to produce profit, especially as companies compete to expand their bike fleets. Many analysts now believe that the only path to profitability is to eliminate competitors; some even argue the goal is unreachable. (Source: Caixin, link in Chinese)
4. Tencent Unveils Service to Curb Overspending by Children on Games
What: Chinese internet giant and game developer Tencent is trying out a service to notify users of overspending by children on games. When a user of Tencent’s QQ platform who is suspected to be a minor spends 500 yuan or more on Tencent-developed games in a single day, customer service will initiate contact to confirm the transaction. The service covers popular games like “King of Glory” and “League of Legends.”
Why it’s important: The service is the latest effort by Tencent to tackle social problems caused by its games. With “King of Glory” and other Tencent-developed games becoming massively popular among young users, numerous reports have emerged of children stealing parents’ phones and payment information to make gaming purchases. Some children have been reported to spend as much as 20,000 yuan within a week. (Source: Jiemian, link in Chinese)
5. Huawei’s Partnership With American Colleges Draws Scrutiny from Regulators
What: A bipartisan group of 26 U.S. lawmakers highlighted national security concerns over Huawei’s research partnerships with American colleges and universities in a letter to the U.S. Education Secretary Betsy DeVos on Tuesday. Huawei’s partnerships including providing funding to universities’ research in communication technology, computer science, engineering and related fields.
Why it’s important: The letter was the latest effort by members of the U.S. Congress to target Huawei and ZTE, another major Chinese telecommunications equipment company. The U.S. intelligence community has warned for years of Huawei’s links to the Chinese government. (Source: South China Morning Post)
6. Trump Administration Faces Pressure From Congress on ZTE
What: U.S. President Donald Trump met with several members of Congress on Wednesday to address lawmakers’ national security concerns regarding Chinese telecom giant ZTE. Lawmakers said progress is being made but no agreement has been reached.
At a Senate Finance Committee hearing on the same day, U.S. Commerce Secretary Wilbur Ross agreed to provide a response to the national security concerns, while noting that his department had dealt with the issue within its domain, focusing on trade regulations, “not espionage.”
Why it’s important: The Trump administration announced in June that it would lift a seven-year ban on ZTE purchases from U.S. suppliers after ZTE paid a fine and met other conditions. But Congress is working to install a provision that will reinstate the ban.
Big picture: The focus on ZTE at a hearing on Trump’s recent tariffs against China highlights how entangled ZTE has become in the developing trade war between the two countries. It also shows that national security has become increasingly central to the U.S.’s business dealings with China. (Source: South China Morning Post)
Compiled by He Shujing.
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