July 18, 2019 / 5:42 AM / a year ago

Breakingviews - Stalling Didi scrabbles to rev its China engine

The logo of Chinese ride-hailing firm Didi Chuxing is seen at their new drivers center in Toluca, Mexico, April 23, 2018. REUTERS/Carlos Jasso

HONG KONG (Reuters Breakingviews) - China’s Didi Chuxing is revving up its sputtering engine. The ride-hailing app is trying to raise up to $2 billion in fresh funds, the Wall Street Journal reported on Wednesday, citing people familiar with the matter. Even with a dominant share in its home market, money-losing Didi is struggling with regulatory demands and a plethora of small rivals. There’s reason for investors to be cautious.

Since driving Uber out of the People’s Republic three years ago, the outfit led by Cheng Wei has stalled under intense regulatory scrutiny. New driver restrictions went into effect across major cities, resulting in a shortage of rides on offer. That was made worse last year after two passengers were murdered in separate incidents, prompting authorities to step up pressure further. The subsequent crackdown forced Didi to remove over 300,000 drivers. Competition from new services launched by local carmakers, as well as food delivery outfit Meituan Dianping, have also added to Didi’s woes.

The result has been a financial wreck. In an internal letter from Cheng dated September, the chief executive said the company lost more than 4 billion yuan ($582 million) in the first half of 2018 alone, after paying out more than 11.7 billion yuan in subsidies. Since then, Didi has raised fares in some cities, scaled back elsewhere, and even inked tie-ups with some rivals to staunch the bleed.

Cheng will hope a capital injection can jumpstart a turnaround. The company, which could be valued at $62 billion, is looking abroad for growth. It is already battling out with the likes of Uber in markets like Mexico and Brazil. Fresh funds could also help prop up sideway bets in autonomous driving, electric vehicles, and financial services.

Its backers may be less than enthusiastic, though. Lacklustre U.S. market debuts from Uber and Lyft have tempered enthusiasm for ride-hailing in general, raising question about profitability. Moreover, venture capitalists have become increasingly picky: Chinese deal flow in the second quarter cratered by more than three quarters from a year earlier to $9.7 billion, data from Preqin show. Didi’s existing shareholders, including Softbank’s Vision Fund and Apple, will need to step up.


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