Fri, Aug 21, 2020 page10

• MBK leads talks to take Car Inc private, sources say

  • Reuters, HONG KONG
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  A group led by North Asia-focused private equity firm MBK Partners is in talks to take Car Inc (神州租車) private, according to four people with knowledge of plans to buy China’s leading auto rental company

  The consortium plans to offer more than HK$3.10 per share to take Car Inc private, two of the people said, representing a premium of at least 28 percent to the HK$2.43 average of the company’s share price over the past month.

  While a full take-up at that price would raise Car Inc’s market value to about US$850 million, as the talks proceed, some existing shareholders might opt to retain stakes, one of the people said.

  The talks come after Car Inc shares tumbled more than 50 percent this year, hit by fallout from an accounting scandal at the fast-growing Luckin Coffee chain (瑞幸咖啡) with which it shares a cofounder, Charles Zhengyao Lu (陸正耀).

  The plan is also among the latest to emerge as global private equity investors seek take-private opportunities, hoping to snap up bargains with share prices around the world squeezed lower amid recessions triggered by the COVID-19 pandemic.

  According to bourse filings, Lu, also Car Inc’s chairman, owns 21 percent of the auto rental firm, whose market value has dropped to about US$700 million, and investors have been circling the shares held by the entrepreneur, sources said.

  Earlier this year, a company controlled by Lu’s family defaulted on a margin loan of more than US$500 million.

  The MBK consortium, which also includes Chinese PE firm Boyu Capital (博裕資本), has been in talks mainly with state-owned Beijing Automotive Group Co (BAIC, 北京汽車), which became Car Inc’s biggest shareholder with a 29 percent interest last month, two of the people said.

  All four sources declined to be identified as the deal talks were confidential.

  Interest in Car Inc, No. 1 in China’s lucrative, but fragmented auto leasing market, has rocketed since the woes at Luckin Coffee.

  The once-hot coffee start-up saw its shares plunge to an all-time low in April after it disclosed the accounting scandal.

  BAIC acquired its stake just last month from ride-hailing services provider UCar (神州優車)— also founded by Lu — and private equity firm Warburg Pincus at the same HK$3.10 per share price.

  The move also comes as the consortium looks to consolidate the rapidly growing auto rental market, where it sees strong growth because of low penetration and increasing mobility needs, two of the sources said.

  MBK already controls the No. 2 player in the market, eHi Car Services (上海一嗨汽車租賃), together with its chairman.

  While the market was forecast to grow 60 percent to nearly 150 billion yuan (US$21.7 billion) in 2023 from 92 billion yuan last year, the top three players’ combined market share is below 30 percent, according to domestic consulting firm Zhiyan (智研諮詢) and ratings agency S&P.

  If the deal is completed, the consortium would count on eHi Car Service, to run Car Inc, two of the sources said, pushing out a management team close to Lu, as well as buying his stake.

  However, eHi said it had “no knowledge about the consortium nor plans to participate in any possible post-transaction operation.”
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