Warburg Pincus buys 17% stake in China Auto Rental

The private equity firm is a longstanding investor in CAR, having committed $200 million for a significant minority stake in the company in 2012 after it abandoned plans for a US IPO. CAR subsequently went public in Hong Kong in 2014. Warburg Pincus also invested in Ucar prior to the company listing on China's National Equities Exchange & Quotation (NEEQ) – otherwise known as the new third board – in 2017. Ucar was established by Zhengyao Lu, CAR's founder and CEO.

The private equity firm currently owns 10.11% of CAR, having pared its stake from 23.1% at the time of the IPO. Ucar holds a 25.92% interest. The first tranche of the transaction will see Warburg Pincus buy 98.6 million shares from Ucar for HK$2.30 apiece. The second tranche – which is conditional on several unspecified conditions being met – involves the purchase of up to 264.1 million shares for HK$3.40 apiece. The private equity firm will invest up to HK$1.12 billion ($145 million) in total.

CAR's stock was trading at HK$2.64 as of mid-morning on April 17, up 30.5% for the day. It fell from HK$4.30 to HK$1.96 on April 3 after Luckin, a Chinese coffee shop chain listed in the US, announced that RMB2.2 billion ($310 million) worth of sales in 2019 were fabricated. Lu was an early backer of Luckin and serves as the company's chairman. Luckin COO Jian Liu, who has been suspended over the suspected fraud, previously held an executive role at CAR.

Lu holds a 29.76% stake in CAR, a 39.94% interest in Ucar, and approximately 36% of Luckin. Ucar will use the proceeds from the CAR share sale to pay down its debts. Last week, the company sold a 2.11% position in CAR on the open market. Ucar recently completed a RMB4 billion debt restructuring for one of its subsidiaries.

CAR offers a combination of short-term and long-term vehicle rentals as well as chauffeured car services through a collaboration with Ucar. It had a fleet of 148,894 vehicles at the end of 2019. Revenue for the year came to RMB5.56 billion, up from RMB5.34 billion in 2018, while adjusted EBITDA climbed from RMB3.25 billion to RMB3.46 billion. However, net profit fell 89.3% year-on-year to RMB31 million and adjusted net profit declined 57.1% to RMB292 million.

CAR blamed a reduction in average daily revenue per vehicle as well as increased depreciation and finance costs for its deteriorating financial performance. It pointed to weak consumer sentiment and a consequent fall in travel. The company also warned that performance in the first quarter of 2020 has been seriously impacted by the coronavirus outbreak.

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• Topics
• Greater China
• Consumer
• PIPEs
• China
• Warburg Pincus Asia
• Transportation