Alibaba-Backed Easyhome Finds Cash Cushion With $546 Million Placement

Alibaba-backed furniture chain operator Easyhome New Retail Group Corp. Ltd. is raising 3.6 billion yuan ($547 million) by issuing new shares at a steep discount, with plans to use the funds to cushion its capital and launch new projects after a rough period during China’s Covid-19 outbreak.

Easyhome will raise the money by issuing around 509 million new shares at 7.06 yuan each, accounting for 7.8% of its total share count, according to a company announcement (link in Chinese) issued late Monday. The sale price represents a 20% discount to the company’s average stock price for the 20 trading days before Oct. 30, which is the date the first new shares were issued.

The final fundraising total is about 20% less than the 4.56 billion yuan figure Easyhome floated when it first proposed the placement in May.

Existing investor Alibaba Group Holding Ltd. will buy another 200 million yuan worth of shares, while smartphone maker Xiaomi Corp. will buy 100 million yuan worth. Aegon Industrial Fund Management Co. Ltd. is the largest of the 23 investors in the group, buying just over 1 billion yuan worth of shares, or nearly 30% of the total. Minsheng Royal Fund Management Co. Ltd. is another major investor, purchasing 400 million yuan worth of shares.

Easyhome, which gets most of its revenue from franchise, rental and store management fees, said it will use 1.48 billion yuan to upgrade its stores. Another 1 billion yuan will be used to boost its working capital, and 450 million yuan will be used for the second-stage of an intelligent logistics park being built in the Beijing-Tianjin-Hebei area in northern China.

Control of the company will remain with founder and Chairman Wang Linpeng, though his direct and indirectly held stake will drop to 57.11% from a previous 61.94%. Alibaba’s stake in Easyhome will be diluted to 8.84% from 9.58%.

On a broader basis, the company said it was raising the capital as part of an exercise to strengthen its financial position in the face of challenges created by the Covid-19 outbreak, which put a serious damper on retail buying in the first half of the year in China.

Alibaba first invested in the company in 2018, when it paid 5.45 billion yuan for 15% of Beijing Easyhome Furnishing. Easyhome used those funds in part to deleverage, with its debt-to-asset ratio dropping from 83.50% at the end of 2017 to 57.64% a year later. The ratio has remained at similar levels since then, and was down to about 54.33% at the end of this year’s third quarter.

Easyhome made a backdoor listing in Shenzhen in 2019. Its revenue grew about 8% that year to 9.1 billion yuan, while profit attributable to the parent company rose 60% to 3.13 billion yuan. The company’s sales fell 4% year-on-year in the first three quarters of this year to 6.25 billion yuan as it took a hit from depressed sales during China’s outbreak in the first half of the year. Profit attributable to its parent tumbled nearly 60% to 915 million yuan over that period.

The company’s stock opened 6% higher on Tuesday after it announced final terms of the placement. But its shares soon weakened, and the stock ended the day up a more modest 2.9% at 8.56 yuan.

Contact reporter Yang Ge (geyang@caixin.com)

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