Alibaba to Raise $1 Billion for Local-Services Platform Koubei

According to those familiar with the situation, Alibaba Group Holding Ltd. is planning to raise about $1 billion for funding the expansion of Koubei, its local-services platform. This would increase the value of the venture as it will reach $8 billion. The people said that the new fundraising would invite outside investors for setting a valuation benchmark for the business. Currently, Koubei is operating in the highly competitive field of taking online orders for offline services like food delivery. So far, it has been funded mostly from Alibaba and the Ant Financial Services Group, which is its financial affiliate.

The people stated that fundraising from outside investors could actually enable the operation to become more independent, which would put it in the position of listing shares as an individual entity eventually. Nonetheless, the terms of the deal haven’t been finalized as yet, but this could change as the Chinese internet giant is still continuing negotiation with potential investors. They said that the Chinese online shopping firm has hired Credit Suisse Group AG for the purpose of reaching out to a small group of renowned international investors that already have strong ties with Alibaba for the deal. Ant Financial and Alibaba together invested about $1 billion in Koubei.

This investment meant that they had gotten 50% equity stakes in the business when it was first launched in June 2015. Since then, the two firms have also made a combined investment worth $1.25 billion in Ele.me, a food-bearing app. The internet giants in China have focused on trying to expand their shares in the highly tough competitive market of smartphone applications that connect users with brick-and-mortar services like food deliveries, movie ticketing, taxi rides and restaurant bookings. Initially, Alibaba had also chosen to invest in the biggest online-seller of restaurant bookings and movie tickets in China, Meituan.

However, the company had decided to get rid of its stake due to clashes with the founder of the firm, Wang Xing. Meituan had taken the decision of merging with Dianping, which is a rival service backed by Tencent Holdings Ltd, Alibaba’s competitor. Initially, Koubei had focused on deliveries of food-and-beverages, but has chosen to expand into other online-to-offline services by enabling merchants to set up virtual stores on their platform. Even though it hasn’t raked in any profits, Koubei has expanded quite rapidly. In its latest earnings release, Alibaba said that in the quarter ended on June, payments worth $5 billion had been recorded by Koubei via the Alipay service of Ant Financial.

This is a 48% increased as opposed to the previous quarter. Alibaba disclosed that its share of losses in Koubei had been around $37 million. There have been a number of startups that haven’t been able to survive in the battle of attracting users with subsidies and heavy discounts, but the likes of Tencent and Alibaba have very deep pockets and they also have access to supporting devices such as payment platforms, data and maps for giving them an edge over their smaller competitors.