FUND RAISING: Funding Flies for Foodie, Sputters at Car Maker

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Bottom line: Saohuo’s new angel fund-raising shows that Internet companies with innovative concepts can still attract growth capital, while Great Wall’s scrapping of its new share issue shows China’s new energy car program is sputtering.

Saohuo cashes in on near-expired food

A couple of fund-raising stories are in the headlines as the new week begins, showing that Internet plays continue to be hot while older industries like cars lose their appeal. The first story brought a smile to my face because of its “only in China” nature, and has seen some significant early fund-raising by an e-commerce company that specializes in imported foods that are near their expiration date. The second story has car maker Great Wall Motor (HKEx: 2333; Shanghai: 601633) scrapping its own fund-raising plan due to lack of investor interest in China’s sputtering effort to boost new energy cars.

China’s economic slowdown is putting a definite damper on older industries like steel and autos, where rapid build-ups over the last few years have led to overcapacity and plunging profits. But there’s still plenty of room for growth in the Internet space, as online companies and app makers use innovative concepts and business models to steal business from more traditional players like banks and brick-and-mortar retailers.

An e-commerce developer of an app called Saohuo is one such company, combining China’s growing taste for imported food with its equally strong preference for bargains. The company, Dingfan Import and Export Trading, has just won tens of millions of yuan in angel funding, equaling probably around $10 million, to develop the business. (English article; Chinese article)

Saohuo buys and then resells food that has been returned to distributors after going unsold at supermarkets as the expiration date approaches. Right now the company only sells directly to consumers, but it is also aiming to launch an open platform where third-party merchants can offer such products. I don’t usually write about such small fund-raisings, as these amounts are quite common and therefore not too noteworthy.

But in this case I really do think this is a concept that looks very well suited to China, where food safety scandals are an everyday fixture that has sparked a huge demand for imported food. Of course we’ll have to see how well Saohuo executes, but the company could certainly do well as an early arrival to a space with big potential.

Crowded Car Market

Next there’s Great Wall Motor, which is just one of many names in China’s crowded car market and not really a stand-out player. Great Wall has just announced it is officially scrapping its plan to raise 12 billion yuan ($1.8 billion) through the sale of new shares due to unfavorable market conditions. (English article; Chinese article)

Great Wall had originally planned to offer the new Hong Kong-listed shares in a private placement at no less than HK$14.39 ($1.85) per share when it first announced its plan last summer. It planned to use the proceeds to develop new energy cars. But its shares have lost more than half their value since then, and now trade at just HK$6.40 apiece.

Great Wall is just one of a growing list of Chinese companies from more mature industries that are scrapping such plans as investors lose interest in such stocks. Since the beginning of the year 63 companies have revised plans to issue additional shares, according to Chinese media. Three other auto makers, including Warren Buffett-backed BYD (HKEx: 1211; Shenzhen: 002594), have also drafted plans to issue new shares to fund new energy vehicle development, though all are still pending.

In this particular instance, I do sense that investors are increasingly wary of Beijing’s aggressive plans to promote new energy vehicle development. The government is now scrapping financial incentives for buyers of such cars, after discovering that people were making purchases just to get incentives with no intention of actually driving the cars. All that said, it’s quite possible we could see BYD and the 2 others ultimately scrap their new share issues, in a sign that China’s new energy car ambitions are rapidly stalling.

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