A Meituan autonomous delivery vehicle makes a test run in an industrial park in Beijing in November 2020. Photo: cnsphoto

Food delivery behemoth Meituan has raised $10 billion in a sale of stock and convertible bonds, underscoring strong investor faith in the growth prospects of some Chinese technology companies despite a regulatory clampdown on the sector.

The Tencent-backed company, with a market valuation of $220 billion, said it plans to use the proceeds to invest in autonomous delivery vehicles, delivery drones and other cutting-edge technology.

"Meituan will use most of the capital in updating its delivery system, which currently relies on human drivers and will soon be unaffordable for the company as labor costs continue to rise in China," said Zhang Yi, head of consultancy iiMedia Research.

"It is making plans for its future in five to 10 years," he added.

The autonomous delivery vehicles developed by Meituan were officially put into operation in Shunyi district, Beijing earlier this week. 

The vehicles, which have achieved level-four autonomous driving, can carry up to 150 kilograms and travel up to 20 kilometers per hour. 

During the past five years, these vehicles have undergone 31 tests, including performance, durability, cold environment capabilities, operating time and the ability to stop when they sense a barrier 150 meters away. 

It is estimated that sometime in the next three years, Meituan will offer the autonomous delivery service of food and vegetables in Beijing, Shenzhen in South China's Guangdong Province, and other locations.

Quality of life

"The low-speed autonomous delivery vehicle aims to provide immediate outdoor delivery. The release of the vehicle shows that Meituan can mass produce these vehicles. In the future, these unmanned vehicles will be used alongside deliverymen to make deliveries more efficient and create a better experience for users. We will also continue to invest more in scientific and technological innovation and accelerate the exploration of unmanned distribution to improve everyone's quality of life," Xia Huaxia, vice president and chief scientist of Meituan, said.

Analysts also expect the company to shore up its community group bulk buying service, Meituan Select, which has been growing in popularity. The service is part of its new initiatives division, which has been reporting operating losses and is expected to continue to do so for the next few quarters.

In a record fundraising for the company, Meituan sold $6.6 billion in shares and gained roughly $3 billion in two-tranche convertible bonds. Another $400 million was raised by selling more shares to Tencent Holdings, its largest shareholder, whose stake now stands at around 17 percent.

At least 300 investors placed orders to buy the stock with the top 20 orders taking up about two-thirds of the offer, said a source with knowledge of the matter.

Most demand came from global long-only funds, hedge funds and Chinese investors, said the source, who declined to be identified as the deal details were not public. Meituan declined to comment.

A Meituan food delivery driver is seen in Beijing in February. Photo: cnsphoto

Financing still available

Robust demand for the company's debt and equity securities comes as Chinese regulators crack down on technology giants for a range of violations from monopolistic behavior to flouting rules for handling customer data.

These include a record $2.8 billion fine this month on Alibaba Group Holding for monopoly law violations, while Meituan Select was among five platforms fined by China last month for improper pricing behavior.

"Chinese regulators... just intend to regulate them as per the law," said Zhang. "Financing access, for both giants and start-ups, hasn't changed and will keep being available."

Tencent recently raised $4.2 billion in a bond offering that was the company's second in a year.

Meituan, which competes with Alibaba-backed Ele.me among others, had an estimated 68.2 percent of the Chinese food delivery market in the second quarter of 2020, according to Trustdata.

Food delivery in China, which brings in more than half of Meituan's total sales, has grown by more than five times since 2016 to be worth over 650 billion yuan ($100 billion), according to iResearch. Meituan's services also include restaurant review sites and bike-sharing.

The company sold 187 million shares at HK$273.8 ($35.26) each, near the top end of the indicative range set on Monday. At $7 billion in equity sales, the deal is the sixth largest follow-on share sale by a Hong Kong-listed company, according to Dealogic data.

The convertible bond offers a zero coupon rate, meaning investors buy to secure future equity gains when it converts into stock. They would have their principal repaid at maturity if the option to convert into shares is not exercised.