Why Uxin must hit top gear to make $500m IPO pay off

As loss-making Chinese auto trading app prepares Nasdaq listing, the company needs to distinguish itself from rivals in a fiercely competitive market. Will Leonardo DiCaprio help?

Uxin is set to become the third Chinese automobile trading platform to go public in the US after the Beijing-headquartered company applies for a Nasdaq initial public offering worth up to $500 million on Wednesday.

The seven-year-old company is likely to grab some attention particularly from the US investment community since it has been some while since the last Chinese auto trading site launched an IPO. Bitauto went public in 2010, while the IPO of Autohome was completed in 2013.

But Uxin's upcoming flotation is far from the only example of major fundraising activity in the sector; a string of Chinese auto-trading apps are competing for fresh capital to grow their market share.

Privately-held Renrenche was the latest to tap new capital, raising $300 million from the likes of Goldman Sachs, Tencent and Didi Chuxing last month. Cheduohao, the company behind China’s third-biggest auto trading portal, Guazi, raised $818 million from the likes of Tencent, Singapore’s GIC PrivateIDG Capital, and Yunfeng Capital in March.

In November last year Souche raised $335 million from Alibaba, Warburg Pincus, and Primavera, among others. In the same month, Bitauto’s unit Yixin raised $867 million from an IPO in Hong Kong.

VALUE PROPOSITION

The highly-competitive landscape in China’s auto trading sector means Uxin’s senior management will have to make a good presentation throughout its listing process to distinguish their company from the other market players.

In its preliminary prospectus Uxin offers some hints as to its unique selling points. The company has a significant exposure to the business-to-business model through Uxin Auction, an app that provides businesses with a comprehensive suite of solutions, helps them source vehicles and optimise their turnover, while also facilitating cross-regional transactions.

Uxin’s B2B exposure makes it stand out among most of the other Chinese auto trading apps, which help independent owners trade their second-hand cars with each other.

To be sure, the company is in high-growth mode. Last year, Uxin sold 634,317 cars through its platforms, a staggering 67% increase on the 377,777 cars sold in 2016. Its total revenue grew 137% year-on-year to Rmb1.95 billion ($298 million) last year from Rmb824 million a year earlier.

But Uxin is still far from turning profitable. Last year, its operational loss widened to $420 million from $210 million in 2016. In the first quarter this year, it booked a loss of $130 million, an increase of 65% from the first three months of 2017.

CASH-BURNING

These figures suggest Uxin is still burning cash to attract users and promote its brand, a strategy it adopted as early as 2015.

In October that year, Uxin spent $4.7 million for a 60-second advertisement during the variety show The Voice of China, more than triple the fee paid for the same slot a year earlier and setting the record as China's most expensive single television advertisement ever.

Little known in the US, Uxin has now engaged Hollywood superstar and Oscar winner Leonardo DiCaprio as its spokesperson ahead of the IPO.

Since its inception in 2011, Uxin has completed multiple rounds of private fundraising to support the cash-burning strategy. The company counts Warburg Pincus, TPG, Hillhouse, Baidu and Tencent among its shareholders.

Still, Uxin will likely have to navigate the headwinds against the auto trading sector. In particular, Hong Kong-listed Yixin has fallen out of favour with investors and lost nearly half of its value since its IPO, despite making a solid 32% gain on its debut. 

The relatively weak sentiment is reflected in Uxin's estimated IPO value. The company had put out soundings for as $800 million deal but is now going after $500 million only.

Morgan StanleyGoldman Sachs, JP Morgan, CICC and China Renaissance are joint bookrunners of the IPO.

 

China’s top 8 car trading apps

App

Market Share

Major Shareholders

58che (58.com) 

34.9%

General Atlantic

Hillhouse

Che168 (Autohome) 

13.2%

Baillie Gifford

BlackRock

Guazi (Cheduohao) 

9.2%

Tencent

GIC

IDG

Yunfeng

Uxin 

8.6%

TPG

Warburg Pincus

Ganji  

7.6%

Carlyle

Tiger Global Management

Baixing 

6.4%

GSR Ventures

Taoche (Bitauto) 

6.3%

Alibaba

Warburg Pincus

Primavera

Renrenche 

3.4%

Goldman Sachs

Tencent

Didi Chuxing

Source: Gongpingjia (Chinese user-car valuation service)

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