Beijing approves first bike-sharing IPO

Changzhou-based bike-sharing firm Youon will be the first to ride into the public market, having received approval for a Shanghai IPO.

Public investors will soon get a taste of one of China’s hottest businesses after bike-sharing company Youon won regulatory approval for an initial public offering on the Shanghai Stock Exchange.

Officially known as Changzhou Youon Public Bicycle System, the Jiangsu-headquartered firm said on Thursday that it intends to float 25% of its equity capital in a 24 million-share offer, looking to raise as much as Rmb598 million ($86 million) for a market cap of about $344 million.

Being the first bike-sharing company to potentially go public -- it has to come to market within six months of regulatory approval -- Youon’s share sale will hog the attention of industry experts and gauge the strength of investor interest in what is a somewhat controversial business model.

China’s bike-sharing craze is being interpreted in different ways by entrepreneurs and investors alike. Supporters see enormous potential in this form of traffic to tackle urban congestion and pollution. Yet many experts believe the business has a low entry barrier, is hard to manage, and requires huge investment and a long time to become profitable.

Some of China’s best-known bike-sharing platforms, such as Mobike and Ofo, are backed by leading private equity and venture capital firms like Warburg Pincus, Hillhouse Capital, and Sequoia Capital. As such, Youon’s floatation will be an important indicator of just how able they will be to eventually exit their investments via the IPO route.

In a similar fashion to China’s express delivery industry, dealmakers hope a successful Youon IPO will drive a new round of fundraising among other bike-sharing hopefuls.

STO Express, one of China’s five largest logistics companies, announced plans to go public in December 2015. All four of its rivals have followed suit within a year, wasting no time to raise funds in order to catch up with STO’s expansion plans.

Different business model

Youon’s IPO serves as a good opportunity for the public to take a peek inside the fundamentals of the bike-sharing business.

The company has proved itself as a growing business with good profitability. Between 2014 and 2016, Youon’s revenue increased at a compound annual growth rate (CAGR) of 26.5% to Rmb770 million, while earnings also grew at a 19.3% CAGR to Rmb116 million. That does not look bad for a company with a corporate history of just six years.

However, it is perhaps too early to call a success on the bike-sharing business.

That is because Youon’s business model is different from many other bike-sharing startups, which operate dock-free bikes that do not require users to park at specific spots. Youon, which requires users to take and return its public bikes at 32,000 docking stations across 210 cities, is therefore seen as a less competitive player in the modern bike-sharing industry.

But Youon apparently thinks otherwise. In its preliminary prospectus, the company argued that it enjoys a competitive advantage in third- and fourth-tier cities, where dock-free bikes are less practicable due to less demand.

Youon also pointed to strong local government support for public bikes. According to the prospectus, Youon’s biggest customers comprise provincial and municipal governments as many of them promote bike-riding as a carbon-free form of traffic.  

As of the end of last year, Youon had entered into bike-sharing contracts worth Rmb3 billion with local governments.

The company also receives government subsidies for early-stage infrastructure investment, which gives it an edge over other private capital-backed startups.

Temporary halt

Youon does run dock-free bikes through its subsidiary in first- and second-tier cities, but the business is small and is yet to be profitable.

As of the end of last year, the subsidiary owned some 50,000 bikes (compared with about 2 million bikes each for Mobike and Ofo) and reported a net loss of Rmb361,000. The segment accounted for 0.05% of the firm’s total revenue.

The company has also put a temporary block on the development of dock-free bikes. Last month, it cancelled a series-A fundraising from investors that included Ant Financial, IDG Capital, and government-backed Shenzhen Capital Group, arguing that it was not sensible to invest in dock-free bikes at the moment because of fierce competition and the cash-burning strategies of some competitors.

In the immediate future Youon plans to focus on developing its public bikes business, using the bulk of the IPO proceeds for research and development and operational purposes.

Youon is yet to announce an IPO timetable, but it is required to list within six months once it receives regulatory approval, according to mainland Chinese listing regulations.

CICC is the sole bookrunner for Youon’s planned IPO.

¬ Haymarket Media Limited. All rights reserved.
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