July 17, 2018 / 2:41 AM / 2 months ago

Didi seeks $1.5 billion car services spinoff ahead of likely IPO: sources

HONG KONG (Reuters) - Chinese ride-hailing giant Didi Chuxing Technology Co Ltd is looking to spin off its car services unit in a deal worth up to $1.5 billion, ahead of its expected initial public offering (IPO), people with direct knowledge of the matter said.

While Didi has never confirmed its plans for an IPO, a blockbuster float could happen as early as next year, according to separate sources, and the spin-off of what is a relatively asset-heavy part of its business could be a step towards that.

Didi is among a number of Chinese firms that are actively looking to raise capital. Its rival in the food delivery space, Meituan Dianping, is planning a float in Hong Kong, backed by recent reforms in the financial hub that pave the way for tech firms with weighted voting rights to list.

Didi is hoping to raise $1-$1.5 billion by spinning off its car services unit and has tapped long-term investor SoftBank Group (9984.T) among others, the sources told Reuters, adding the company currently values the unit at $2-$3 billion.

“Car service-related business usually requires more cash investment and is a heavy asset, which would be a disadvantage for an IPO,” said Mo Jia, a Shanghai-based analyst at Canalys.

“To spin it off and involve investment from other venture capitalists or private equity funds to develop this business could prevent Didi’s future IPO and evaluation from being dragged by this heavy-asset business,” the analyst added.

A Didi IPO would be one of the biggest of recent years given the company’s $56 billion valuation at its last fundraising round in 2017.

Didi declined to comment on the spin-off, while SoftBank did not respond to a request for comment. The sources declined to be named as the information was confidential.

The Chinese ride-hailing giant had in April launched the car services unit - which brought together its car rental, sales, maintenance, sharing and gas services businesses.

FILE PHOTO: 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/File Photo

At the time, the unit operated in over 200 Chinese cities with a network of more than 5,000 partners and downstream vendors. Didi had said the unit’s annualised gross merchandise value was expected to rise almost threefold to above 90 billion yuan ($13.4 billion) by the end of the year.

DIDI’S EXPANSION

Didi’s mobile app, where users can hail taxis, privately-owned cars, car-pools and even buses in some cities, remains its core business. Didi cemented its spot as China’s top ride-hailing firm when it bought Uber’s local operations in 2016.

It has since expanded into a number of markets worldwide, including Southeast Asia, Brazil, Mexico and Australia, by either taking stakes in local ride-hailing firms or rolling out its own services.

In a boost for its aggressive plan to enter more markets outside China, Didi on Tuesday said it had received a $500 million investment from Booking Holdings Inc (BKNG.O).

The U.S. travel firm will allow users in its apps to hail Didi cars as part of the agreement.

Didi has already launched a food delivery service to compete with Meituan Dianping, China’s dominant startup in that area, which is planning an IPO of over $4 billion in Hong Kong in the coming months.

Reporting by Julie Zhu and Kane Wu in Hong Kong; Additional reporting by Cate Cadell in BEIJNG and Sam Nussey in Tokyo; Editing by Himani Sarkar

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