The freight business of Didi Chuxing, China’s most popular ride-hailing app, may tap investors for additional capital after its debut fundraising drew about $3bn in bids, highlighting strong demand for exposure to the sector.
Didi Freight initially planned to sell up to $400m of equity in December, according to people directly familiar with the situation, but is now considering raising further funds after investors lodged bids for the round worth seven times that amount.
The additional fundraising could be carried out this month, the people said, adding that the plans were not yet finalised. The funds would be used to significantly expand Didi Freight’s presence across big cities in China.
Didi Freight matches China’s vast pool of self-employed truck drivers with jobs such as goods deliveries and home removals. The majority of freight in China travels by road and investors have been drawn to those internet companies that they believe can boost the industry’s efficiency.
Number of transactions per day on Didi Freight as of September
Parent group Didi Chuxing announced a series of new business ventures last year in what analysts say is probably a bid to bolster the company’s valuation ahead of an expected initial public offering. The group is known internationally for forcing US ride-hailing company Uber to exit China in 2016.
Among its newer offerings are a delivery service and a cheaper ride-hailing platform aimed at younger users.
Didi Freight, which began providing services in the cities of Hangzhou and Chengdu last year, was recording about 100,000 transactions per day as of September.
But the company could face an uphill battle against existing online freight and logistics platforms. They include Lalamove, the current leader in door-to-door deliveries within Chinese cities, and Manbang, which is dominant in long-distance haulage and backed by Japan’s SoftBank.
“Everyone believes that this market will incubate a freight platform with a Didi-like leading position . . . but the overall market is more complicated, fractured and lacking in standards than passenger transport,” said an analyst at a large Chinese logistics company. “The competition will be fierce with lots of cash burn.”
Didi’s extensive investment in infrastructure and data analysis, as well as its large footprint in China, could hand it the advantage, said Tu Le, founder of Sino Auto Insights, a consultancy. It “goes back to the IT infrastructure they already have in place”, he explained.
Investors considering a stake in Didi Freight expressed confidence that the company could catch up with its competitors thanks to its parent’s vast user base.
“We think they can also outperform their competitors in terms of tech and their underlying algorithm and infrastructure,” said an investor at one Chinese private equity fund. “They can catch up very quickly in terms of market share.”
“Demand is strong,” he noted, adding that “most of the large firms I know are also looking into this investment now”.
Morgan Stanley and JPMorgan were co-ordinators on Didi Freight’s December fundraising. Didi Chuxing and the banks declined to comment on the matter.