Hong Kong

ELE.ME, the food delivery platform acquired by Alibaba Group Holding Ltd, is on the hunt for US$2 billion of new financing to help in its fight against Meituan Dianping, people familiar with the matter said.

The Chinese company is seeking funds from potential investors such as venture capital firms to expand a business that is burning enormous amounts of cash, according to the sources, who requested not to be named because the matter is private.

While it is unclear how big a stake is available in Ele.me, which was valued at US$9.5 billion in April's Alibaba acquisition, investors would get a piece of a company that is a candidate for a future initial public offering, the sources added.

Ele.me and Meituan are incurring massive losses as they offer heavy discounts on food orders to lure users in a bitter fight for market share. While that lowers prices for customers, both companies have to maintain payments to the armies of drivers on motorcycles that do their deliveries.

The market for on-demand services in China is surging as people increasingly turn to their smartphones to order meals, schedule beauty treatments and hire domestic helpers. It is also strategically important for Alibaba and Tencent Holdings Ltd, a key backer of Meituan, as a means of promoting their respective payment services.

Alibaba declined to comment on behalf of Ele.me. Its shares were largely unchanged in US trade.

While Alibaba bought out the rest of Ele.me this year, founder Zhang Xuhao remains chairman of the company and runs it somewhat independently. Meituan itself is marching toward an initial public offering that has been said to value the company at US$60 billion.

Meituan, the world's third-most valuable tech startup according to CB Insights, revealed huge losses but also a scorching pace of growth when it filed for a much-anticipated Hong Kong initial public offering.

Meituan, of which Tencent owns more than a fifth, posted a net loss of 19 billion yuan (S$3.9 billion) last year, hurt by ballooning spending and after accounting for its preferred stock. However, the Internet company more than doubled revenue to 33.9 billion yuan. BLOOMBERG