Tencent-backed Meituan raises $4.2 billion in IPO priced near range top - sources

By Fiona Lau and Julie Zhu

HONG KONG (Reuters/IFR) - Chinese online food delivery-to-ticketing services firm Meituan Dianping <3690.HK> raised $4.2 billion (3.2 billion pounds) in the world's biggest internet-focused IPO in four years as it priced the float near the top end of a marketed range, people close to the deal said.

Meituan, backed by Chinese social media and gaming firm Tencent Holdings <0700.HK>, sold about 480 million primary shares at HK$69 ($8.79) each in the Hong Kong IPO, valuing the company at around $52.8 billion, the sources said on Thursday.

The proceeds will help Meituan fortify itself against stiff competition from its main competitor, food-delivery platform Ele.me which is backed by China's biggest e-commerce company Alibaba Group Holding <BABA.N>. Both parties, in a bruising battle for market share, are offering heavy discounts to attract new customers.

Loss-making Meituan last month set a price range of HK$60 to HK$72 per share for the IPO. It could raise as much as $4.85 billion in total if a 15 percent "greenshoe", or over-allotment option, is fully exercised after the shares begin trading.

The IPO received strong support from institutional investors despite a weak overall Hong Kong stock market <.HSI>. People close to the deal told Reuters the institutional books were covered multiple times while the retail tranche was covered about 1.5 times.

"Since the stock priced at the upper end of the range, it suggests institutions are holding a more positive view on the company and on this type of new economy IPOs," said Steven Leung, sales director at brokerage UOB Kay Hian. Leung forecast a "stable" debut for Meituan when it starts trading on Sept. 20.

Beijing-based Meituan declined to comment on the pricing. The people declined to be identified as details of the pricing have not been published yet.

Founded in 2010 by Wang Xing, Meituan which has been likened to U.S. discounting platform Groupon Inc <GRPN.O>, completed a $15 billion merger in 2015 with its then main rival Dianping, akin to U.S. online review firm Yelp Inc <YELP.N>.

It offers a broad range of services including movie ticketing, food delivery, hotel and travel booking as well as ride-hailing.

The HK$69 IPO price represents a multiple of 27 times its 2020 profit forecast by its underwriting syndicate, according to sources. The IPO size represents 8 percent of its enlarged share capital and the $53 billion valuation takes into account shares to be issued under a pre-IPO employee stock ownership plan, the people said.

PACKED IPO CALENDAR

Meituan had lined up $1.5 billion from five cornerstone investors for the IPO.

Tencent committed $400 million; global asset manager Oppenheimer $500 million; UK-based hedge fund Lansdowne Partners $300 million; U.S. fund Darsana $200 million and state-backed China Structural Reform Fund $100 million.

Meituan plans to mainly use the proceeds raised from the IPO to upgrade its technology, develop new services and products, and pursue acquisitions or investments in assets complementary to its business, according to its prospectus.

The float comes as Alibaba is beefing up Ele.me's war chest at a time when the cost of expanding in China's food delivery market is rising sharply.

Alibaba said last month it formed a holding company for Ele.me and food and lifestyle services firm Koubei, for which it had received over $3 billion in new investment commitments, including from Japan's SoftBank Group <9984.T>.

Meituan's IPO comes amid a packed Hong Kong listing calendar, including an expected float of at least $3 billion from bitcoin mining equipment maker Bitmain and an IPO worth up to $1 billion from Chinese movie ticketing platform Maoyan Weying.

Hong Kong has seen a pickup in interest for new economy listings following a market rally since late last year and after the exchange introduced new rules designed to attract tech companies by allowing dual-class share structures.

Meituan's float, the world’s largest internet-focused IPO since Alibaba’s $25 billion New York listing in 2014, is also Hong Kong's second multibillion-dollar tech float this year after Chinese smartphone maker Xiaomi Corp's <1810.HK> IPO of $5.4 billion.

But the deal comes at a time when Hong Kong’s stock market has entered bear territory, falling 20 percent from its January peak amid Sino-U.S. trade tensions. Several recent listings, including Xiaomi's, have dropped below their IPO prices.

"Though it priced the stock at the upper end of the range, we see it as an one-off event and it won't be able to cheer up the local IPO market," said Linus Yip, chief strategist at First Shanghai Securities.

Bank of America Merrill Lynch, Goldman Sachs and Morgan Stanley are joint sponsors of Meituan's IPO.

($1 = 7.8481 Hong Kong dollars)

(Reporting by Fiona Lau of IFR, and Julie Zhu; Additional reporting by Donny Kwok; Editing by Edwina Gibbs and Muralikumar Anantharaman)