Ofo raises $866m to ease cash crunch

By Chu Daye Source:Global Times Published: 2018/3/13 20:38:39

Experts urge truce by shared bike providers in price war

Shared bikes at a street corner in Chaoyang district of Beijing Photo: VCG

Leading dockless bike-sharing platform ofo announced on Tuesday a new $866 million round of funding led by e-commerce giant Alibaba Group, easing concerns that the company's funds may be running low.

Other participants in this round of fundraising included Haofeng Group, Tianhe Capital, Ant Financial and Junli Captial.

Experts said that the money gives ofo new ammunition in its battle with Tencent-backed competitor Mobike in the domestic market.

The funding set a record in the bike-sharing industry and marked a new era of operational efficiency for ofo, according to a press release the company sent to the Global Times on Tuesday. The company said it used a combination of debt and equity financing in this round and vowed to retain its "independent" operation.

Mobike and ofo have both achieved unicorn status, with each having a valuation of $1 billion.

The announcement eased concerns over a cash crunch at ofo, and it also came as the two bike-sharing competitors "tacitly" agreed to avoid price wars to win customers.

In December, domestic financial magazine Caixin reported that ofo had just 350 million yuan in cash on hand as of December 1 and was tapping user deposits to cover operating costs.

Liu Dingding, a Beijing-based industry analyst, told the Global Times on Tuesday that the announcement of the new funding confirmed that ofo had been in urgent need of cash.

Because of the structure of the debt and equity funding, "the stakes that remain in the hands of ofo's management team have been trimmed, transforming the company into a channel or a pawn for an internet giant to win customers," Liu said.

"In terms of capital, its rival Mobike is no better-off," Liu said, noting that both companies have stopping offering subsidized monthly cards, which were a form of e-certificate allowing users to ride bikes for an entire month for as little as 1 yuan.

Now that industry price wars are waning, Liu said, "the $866 million that would sustain ofo for months at the original pace of spending can help it for a much longer period."

Li Yanxia, an associate research fellow at the China Academy of Transportation Sciences, told the Global Times on Tuesday that the scenes in some cities of huge fleets of bikes clogging streets or piled up in remote areas awaiting repairs reflected to some extent a mismatch in the supply-and-demand dynamics of the bike-sharing business.

Li suggested that operators bring their business in line with the original purpose of shared bikes, which was to provide a "last-mile" solution for urban commuters to get from a train or bus stop to their final destination.

This year, rationality will return to the industry. "If there's a truce in the price war, profitability is not a big issue. The focus for the two giant bike operators will be profitability and customer satisfaction," Liu said.

"The shared bike business could be a profitable one, but the mad and disorganized competition led to cash burning everywhere," Liu said.

Mobike would have a better chance to gain the top spot, in part due to its ownership structure, which had not seen so much dilution, Liu said. "However, the emerging industry has room to accommodate several players."

One of those players is Changzhou Youon Public Bicycle System Co, which was able to pass China's stringent profitability requirements and get listed on the A-share market in August 2017.

Another is Shanghai-based bicycle-sharing company Hellobike, which said on Tuesday that people can ride its bikes without deposits, using credit points in the Alipay payment system. Hellobike returned deposits worth about 3 billion yuan from its accounts as of Tuesday.

The zero-deposit approach is encouraged by the Chinese government.


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