PE-backed China Auto Rental to raise $467m in HK IPO
China Auto Rental, a car hire firm backed by Warburg Pincus, has set terms for a Hong Kong IPO that will raise up to HK$3.62 billion ($467 million).
According to a prospectus, the company is selling 426 million new shares at HK$7.50-8.50 apiece.
Warburg Pincus invested $200 million in China Auto Rental in 2012 and has a 23.1% stake in the business. The following year Hertz bought $100 million worth of shares from existing shareholders and was issued with two notes, of $100 million and $36 million, respectively, that convert into equity of 19%.
China Auto Rental received RMB14.5 million ($2.3 million) from Legend Capital in 2010 and the following year Legend Holdings, the VC firm's parent group, made a strategic investment of approximately RMB207.8 million. Legend holds a 20% non-controlling interest in China Auto Rental's majority shareholder Grand Union Management.
China Auto Rental originally sought to raise $300 million in an US IPO in 2012 but ended up downsizing and then pulling the offering in response to poor investor sentiment. The Hong Kong IPO is set to be priced on September 11, with trading to begin on September 19. Upon completion of the IPO, Warburg Pincus's interests in China Auto Rental will be diluted to 18.8%.
The firm has received commitments worth $130 million from five cornerstone investors, including $30 million each from US fund manager Waddell & Reed Financial, Hillhouse Capital Management and hedge fund Falcon Edge. Davis Selected Advisers and China Chengtong agreed to invest $20 million each.
China Auto Rental remains China's leading car rental company with a fleet of 52,498 vehicles as of June 2014. Its fleet is larger than the aggregate fleet size of the next nine biggest car rental companies nationwide and four times that of the number two player, according to a Roland and Berger report cited by the company.
The company plans to use 65% of the proceeds to expand its fleet, buying 45,000 to 59,000 additional vehicles, while 20% of the funds would be used to pay down bank loans.
China Auto Rental's customer base has growing from approximately 450,000 in December 2011 to 1.96 million as of June 2014. Its fleet has more than doubled in size during this period. Nearly two thirds of reservations in 2013 came via the company's website and mobile app.
The company posted total revenue of RMB2.7 billion last year, of which 81.7% came from car rentals and 18.3% from the sale of used vehicles. This compares to RMB1.6 billion in 2012 and RMB819 million in 2011.
Net losses widened from RMB151.2 million in 2011 to RMB223.4 million in 2013, but the most recent quarterly earnings indicate a return to profitability. The company recorded profit of RMB218.3 million for the first six months of this year, compared to RMB3.06 million for the same period last year.
Credit Suisse and Morgan Stanley were hired as joint sponsors of the IPO, with China International Capital Corp. (CICC) and China Renaissance acting as joint global coordinators and bookrunners.
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