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  • Greater China

MBK credit fund to join PE fund on CAR investor roster

  • Justin Niessner
  • 04 December 2020
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MBK Partners has agreed to subscribe to $175 million in convertible bonds issued by China Auto Rental (CAR). It follows a large commitment and a take-private offer by MBK last month.

MBK plans to subscribe to the convertible bonds via its debut special situations fund, which closed on $850 million in 2018. The subscription is conditional on the completion of a proposed HK$1.8 billion ($228 million) investment made by MBK’s fourth private equity fund last month. If both transactions proceed, MBK stands to take an almost 37% stake in CAR across the two funds.

The convertible bonds would have a conversion price of HK$4.00 per share, a tenor of five years, and a coupon of 5%, according to a filing. If they are converted in full, the investment will equate to an approximately 16% stake in the Hong Kong-listed company. The Fund IV investment would secure a 20.9% interest.

MBK offered to take CAR private last month in a deal that contemplates a share price of HK$4.00 and valued the company at HK$8.6 billion. This prompted CAR shares to rise 16% to a seven-month high of HK$3.76 on November 16. The stock has stayed in a range of HK$3.60 and HK$3.80 for the past few weeks. It was trading steadily at HK$3.77 as of late-morning December 4, giving the company a market capitalization of about HK$8 billion.

CAR’s stock has gradually appreciated in the past six months, having plummeted to HK$1.96 in April following the exposure of fraud at Luckin Coffee, a Chinese coffee shop chain. Zhengyao Lu, CAR’s founder, was an early backer of Luckin and served as its chairman. Luckin COO Jian Liu, who was dismissed over the fraud, previously held an executive role at CAR.

MBK’s current position in CAR was acquired from Ucar, a chauffeured car service provider established by Lu. Ucar had previously agreed to sell a 17% position in the company to Warburg Pincus but the deal was only partially completed. Ucar subsequently agreed to sell a 20.9% interest to Chinese carmaker BAIC Group for HK$1.4 billion, but the transaction was terminated after failing to complete before the longstop date.

CAR positions itself as “the most recognized” automobility brand in China, with services spanning short-term rentals, long-term rentals, leasing and chauffeured car services through a collaboration with Ucar. There is a strong focus on digital services and innovation. Operations encompass a fleet of around 150,000 vehicles in more than 270 cities.

Revenue came to RMB5.6 billion ($843 million) in 2019, up from RMB5.3 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. For the first six months of 2020, revenue was RMB2.7 billion, down 26% year-on-year.

As of May, MBK’s special situations fund had generated a money multiple of 2x and an IRR of 86.2%. There are expectations for a follow-up to address opportunities related to COVID-19. “We are now over 80% deployed in Special Situations I, paving the way for the launch of Fund II in second-half 2020,” MBK said in May.

The fourth flagship fund, which focuses on MBK’s core strategy of control investments in North Asia, closed at $4.1 billion in 2016. MBK completed fundraising for the successor vehicle earlier this year with $6.5 billion in commitments.

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