LDN - Business

Tencent-backed Meituan climbs 5 percent on debut, brightens outlook for HK IPOs

[September 20, 2018] By Julia Fioretti and Donny Kwok

HONG KONG (Reuters) - Meituan Dianping <3690.HK> rose 5 percent on debut in Hong Kong on Thursday, valuing the Chinese online food delivery-to-ticketing services firm at about $55 billion and sending a positive signal to companies lining up to list in the financial hub.

The stock's performance is being seen as a test of investor appetite for Hong Kong listings against a backdrop of weak markets and multi-billion dollar initial public offerings (IPOs) that have struggled to rise above their issue price, such as smartphone maker Xiaomi <1810.HK> and China Tower <0788.HK>.

The strong debut also reflects investor confidence that loss-making Meituan can fend off bruising competition from food-delivery platform Ele.me, which is backed by China's biggest e-commerce company Alibaba Group Holding <BABA.N>. Both have been offering heavy discounts to win new customers and market share.

Shares of Meituan, which counts China's biggest gaming and social media firm Tencent Holdings <0700.HK> as a key investor, closed at HK$72.65 ($9.26) compared to its IPO price of HK$69 but below the opening level of HK$72.9.

Founded in 2010 by Wang Xing, Meituan, which has been likened to U.S. discounting platform Groupon Inc <GRPN.O>, merged in 2015 with its then main rival Dianping, akin to U.S. online review firm Yelp Inc <YELP.N>.

Meituan's market value today dwarfs Groupon's $2.3 billion and Yelp's $4.1 billion. Xing owns around 573 million shares in Meituan, making his holdings worth about $5.3 billion, more than either of the U.S.-listed companies.

"This may be the most important decision in our investment journey in more than 10 years," wrote Neil Shen, founding and managing partner of Sequoia Capital China, which owns about 12 percent of Meituan. "In this scuffle, Wang Xing led the team to fight more and more bravely, and it was a bloody battle in the fierce competition."

At the listing ceremony on the Hong Kong stock exchange on Thursday, Xing praised the role of the company's almost 600,000 delivery persons and 50,000 employees in fuelling its growth.

"I also want to thank Steve Jobs, thank Apple, without iPhone, without mobile internet, everything we do today wouldn't have been possible," he said.

Meituan's wide variety of services has attracted users, but pushed it into the red. The company lost 22.8 billion yuan ($3.33 billion) in the first four months of this year, despite a big jump in revenue. It lost about $2.8 billion in 2017.

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Drivers of food delivery service Meituan are seen in Beijing, China April 11, 2018. Picture taken April 11, 2018. REUTERS/Stringer/File Photo

The company bought bike-sharing firm Mobike for $2.7 billion this year, an expensive acquisition that is straining its margins.

Alibaba, meanwhile, has been beefing up its offerings, snapping up food delivery service Ele.me and Baidu Waimai, which it plans to roll together with its lifestyle services app Koubei.

BUMPER IPO YEAR

Meituan's stock rise was also helped by broad gains in Asian shares on Thursday as investors took a less bearish view on the impact of the U.S.-China trade war on markets.

This year is set to be the biggest year for IPOs in Hong Kong since 2015, helped in part by a market rally late last year and rules introduced this year to attract tech companies by allowing them to weight voting rights in favor of their founders.

Hong Kong listings have raised $28.7 billion so far this year, compared to $33.8 billion raised in 2015, according to Thomson Reuters data.

But an 18 percent drop in the benchmark Hang Seng index <.HSI> from its January peak and an intensifying Sino-U.S. trade war have clouded the prospects for other companies looking to go public, as investors become more cautious and selective.

Of the biggest 10 listings in Hong Kong this year, just one, Zhenro Properties <6158.HK>, is trading above its issue price.

Meituan is the second company with a dual-class share structure to go public in Hong Kong as well as the second multi-billion dollar tech float in the city this year, following in the footsteps of Xiaomi.

"It sends a relatively positive signal to the upcoming IPOs, but retail investors are unlikely to be particularly keen on this type (dual structure) of IPO for the time being," Linus Yip, chief strategist at First Shanghai Securities, said of Meituan's performance.

($1 = 7.8439 Hong Kong dollars)

($1 = 6.8502 Chinese yuan renminbi)

(Reporting by Julia Fioretti, Sijia Jiang and Donny Kwok; Additional reporting by Kane Wu; Editing by Edwina Gibbs and Muralikumar Anantharaman)

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