FUND RAISING: Alibaba-Tencent Insurance JV Raises Big Funds
Bottom line: Alibaba, Tencent and Ping An’s online insurance joint venture should easily find backers for its first major fund-raising, and could even exceed its $8 billion valuation target due to strong demand.
This year’s list of major private funding raising by high-tech firms continues, with word that an online insurance joint venture involving 2 of China’s biggest Internet names is seeking to raise a hefty $1 billion in its first funding round. This particular venture certainly has a strong pedigree, as it’s backed by Alibaba (NYSE: BABA) and Tencent (HKEx: 700), China’s 2 leading Internet companies with a combined market value of nearly $400 billion. The pair are joined in the venture by Ping An (HKEx: 2318; Shanghai: 601318), China’s second largest insurer and also one of the most aggressive players in its space.
I’m slightly surprised at the size and timing of this latest fund-raising, as it comes more than a year and a half after the trio announced their partnership to form Zhong An Online Assets. The new insurer had a fairly large cash pile of about 1 billion yuan ($162 million) in registered capital when it was founded in October 2013, and is already profitable just 16 months after starting operations. But all that said, it’s a bit surprising the company has waited this long to make its first private placement, and that it’s seeking such a large amount in its first time going to market.
According to the latest headlines, Zhong An wants to raise the $1 billion by selling 12.5 percent of itself to outside investors. (English article) The reports cite marketing materials for the fund raising being circulated in Hong Kong, which seems like the most suitable place since shares of both Tencent and Ping An are traded there and both are also based in the adjacent Chinese boomtown of Shenzhen.
The fund raising would value Zhong An at a hefty $8 billion, which seems like a lofty level for such a young company. By comparison, Ping An itself is valued at just over $100 billion, and smaller rival New China Life (HKEx: 1338) is valued at about $17 billion. The materials being circulated by Zhong An say the company was profitable in its first full year of operation, earning 33 million yuan ($5.4 million) in profits on 740 million yuan in revenue from insurance premiums.
The report also cites the promotional literature saying that Zhong An is aiming for an IPO in 2018, which suggests it may be eying Hong Kong, which requires that all companies must post 3 years of profits before listing on its main board. Zhong An’s founding was a huge event in 2013, as it brought together 3 of the nation’s most prominent entrepreneurs, all of whom shared the same surname Ma. Alibaba owned 20 percent of the original company, while Ping An and Tencent each owned 15 percent. Zhong An’s 6 other original founders also included leading online travel agent Ctrip. (Nasdaq: CTRP)
This particular fund-raising, if successful, would mark at least the fourth such massive exercise by an Internet-linked company in the last 4 months. Group buying site Meituan began the parade when it raised $700 million in December. Smartphone sensation Xiaomi followed weeks later when it raised $1.1 billion, and Meituan rival Dianping joined the group earlier this month when it finalized an $850 private funding round. (previous post)
All of that said, the next big question becomes whether Zhong An will succeed in this latest mega fund-raising round, and whether it will get the frothy valuation it’s looking for. I suspect the answer to both questions is “yes”, not necessarily because Zhong An is worth that much but because it has such a strong pedigree.
We’ve seen a similar phenomenon with travel agent Qunar (Nasdaq: QUNR), which continues to command a frothy valuation, despite its huge losses, because of to its ties with leading search engine Baidu (Nasdaq: BIDU). Accordingly, we can probably expect to see strong interest in Zhong An’s new fund-raising, and I wouldn’t be at all surprised to see it get an even higher valuation than the frothy $8 billion it’s already targeting.
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