Hony takes a trip to Tuniu

However, during the first week of December the company's stock dropped more than 18% to $10.77. Hony Capital came in and, together with other strategic investors, agreed to invest $148 million through a private placement.

"It's possible the drop in the share price was the work of short-sellers who wanted to take advantage of the follow-on offering," a source close to the company told AVCJ. "Hony has been looking at opportunities in this industry for a while and now it has the chance to get involved at only a small premium."

Tuniu issued a total of 37 million new ordinary shares at $4.02 apiece or $12.06 per American Depository Share - which represents a 3.19% premium over the average close for the last five trading days. Hony and online retailer JD.com each contributed $50 million, while Ctrip pitched in with $15 million. The remaining $33 million was split between Tuniu's CEO and COO.

John Zhao, Hony's CEO, said that Tuniu has established itself as a strong player in online booking, offering good services at reasonable prices. "The internet, especially the mobile internet, is changing people's lifestyles and influencing many traditional industries," he added. "Hony Capital focuses on how new technology transforms traditional industries through the combination of online platforms and offline services."

Tuniu listed in the US in May, raising $72 million. Between 2008 and its IPO, the company received least $113 million across four rounds of funding from DCM, Gobi Partners, Sequoia Capital, Highland Capital Partners, Japan's Rakuten and Singapore's Temasek Holdings. DCM, Ctrip and Qihoo 360 also committed capital through a private placement alongside the IPO.

Prior to the latest investment, DCM was Tuniu's largest single shareholder with a 24% stake. It has now been diluted to around 16%.

"The partnership is a good thing for Tuniu," the source said, noting that the company could gain traction with JD.com's user base, complement Ctrip's existing strengths in online travel, and get expansion capital from Hony.

Ctrip's core business is providing flight ticket and hotel bookings through partnerships with various travel agencies and hotel operators. Tuniu has a different approach, focusing on packaged tourism, but the model doesn't appear to be gaining traction with younger travelers, who often don't want to join tours. Losses amounted to $17 million in the third quarter, compared to $2 million a year earlier.

However, some industry participants believe the company has huge potential in the outbound travel market. Brokerage CLSA estimates Chinese spending on tourism could triple by 2020 with more than 200 million people venturing overseas.

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