Chinese delivery giant Meituan raised $ 9.98 billion from a record top-tier placement and convertible bond sale as it continued its efforts to fight Alibaba Group Holding Ltd. doubled in newer areas like online grocery stores.

The country’s third largest internet company has sold 187 million shares in a tapping placement at HK $ 273.80 each, near the high end of its marketed range, and received $ 400 million from shareholder Tencent Holdings Ltd under the terms of the deal, according to Bloomberg News. The $ 7 billion new share issue marks the largest ever sale by a Hong Kong-listed company, data compiled by Bloomberg shows. Meituan has also sold zero-coupon convertible bonds valued at $ 2.98 billion.

Meituan’s shares were volatile on Tuesday, trading 1.2% in Hong Kong at 10:28 a.m. after falling 1.8% earlier. The placement price corresponds to a discount of 5.3% on the closing price of the share on Monday. The convertible bonds are divided into two tranches – $ 1.48 billion six-year notes and $ 1.5 billion seven-year notes, the terms showed.

“Last week there were some rumors about the placement, now the overhang is gone,” said Steven Leung, Executive Director at UOB Kay Hian (Hong Kong) Ltd. “Demand for the placement was strong at the higher end of the range. I heard that the topic was picked up very quickly. “

The stock and bond sales come as Meituan grapples with the cost of competition against Alibaba and Pinduoduo Inc. in newer areas like community e-commerce and online grocery stores. The company has warned that despite record earnings, it will remain in the red for several more quarters as it spends heavily on new initiatives.

Meituan intends to use the proceeds from the offerings for technological innovations, including the research and development of autonomous delivery vehicles, the delivery of drones and other cutting-edge technology, and for general corporate purposes, the conditions indicated.

Meituan Delivery Drivers as a company reports profits

Meituan courier for food delivery in Shanghai.

Photographer: Qilai Shen / Bloomberg

“It makes sense to raise money to move more to autonomous delivery and enter more technology-oriented areas, especially in light of the anti-monopoly campaign,” said Zhou Luyun, an analyst at Northeast Securities Co. in Shanghai. “The pricing shows that the market is buying this blueprint.”

Community shopping is one of Meituan’s main areas of expansion, with shoppers in the same neighborhood enjoying volume discounts on fresh produce. But the company faces stiff competition from other internet giants.

All three major rating agencies lowered their outlook for Meituan after it reported gains last month. S&P Global Ratings and Moody’s Investors Service said its large investments in community e-commerce would cost a lot, generate negative free cash flow, and dampen profits.

“After this placement, some short-term investors could sell the stock and stocks could trade in the range of HK $ 250 to HK $ 300 for a period of time,” said Paul Pong, managing director of Pegasus Fund Managers Ltd. “Medium to longer-term online platform operators like Meituan and Tencent still have solid growth prospects.”

Meituan is focused on developing fast-growing new businesses as China’s economic recovery helped the world’s largest meal delivery service increase orders, while its hotels and travel companies benefited from a rebound in domestic travel as the country curbed the pandemic.

The company has started using self-driving vehicles for grocery delivery in the Chinese capital since the Covid-19 outbreak last year, with at least 15,000 orders completed to date, Wang Xing, the company’s chief executive officer, told analysts during a conference call in March . Wang said Meituan is also experimenting with drone delivery of food in the southern Chinese city of Shenzhen.

China is showing the transformation you want to see

At Alibaba’s Hema store in Hangzhou.

Photographer: Qilai Shen / Bloomberg

Tencent delves deeper into Meituan at a time when global investors are pissed off at tightened regulatory scrutiny over China’s tech sector. Meituan had lost roughly $ 123 billion of its value from a February 17 through Monday high, pounded by fears that Beijing’s crackdown on Jack Ma’s internet empire would extend beyond Alibaba and Ant Group Co. to other industry leaders like Tencent and Meituan devour.

“They’re moving into new areas, including group buying, and they need a lot of capital and they need a war chest to be competitive,” said Kerry Goh, chief investment officer at Kamet Capital Partners Pte. “The ratings are still pretty decent compared to a year ago.”

Bank of America Corp. and Goldman Sachs Group Inc. are joint global coordinators and joint bookrunners for both bond and equity issues. CLSA Ltd. and UBS Group AG are also joint bookrunners for the top-up placement.

– With the support of Ishika Mookerjee, Coco Liu, Catherine Ngai, Jeanny Yu, April Ma and Abhishek Vishnoi

(Updates Meituan’s share price in the third paragraph, adds another quote in the fourth paragraph.)

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