Alibaba's Koubei said to seek US$1b to help fund expansion

[HONG KONG] Alibaba Group Holding's affiliate Koubei is seeking to raise US$1 billion of funding as it steps up its battle with China's other web giants for neighbourhood services, according to people familiar with the matter.

The company is seeking a valuation of US$8 billion in the fundraising, which will help it expand into more cities and add users, the people said, asking to not to be named because the matter is private.

Alibaba is focusing on its own local services after selling its stake in Meituan Dianping, a company backed by Tencent Holdings.

Chairman Jack Ma has stressed the importance of establishing a foothold beyond e-commerce in "online-to-offline," or 020, a market which is expected to reach 7.28 trillion yuan (S$1.39 trillion) by 2017.

Alibaba is making multiple investments in 020 as consumers in China increasingly use their mobile devices to buy physical goods and services.

Together with its affiliate Zhejiang Ant Small & Micro Financial Services Group, it put US$1.25 billion into Ele.me, China's second-largest online restaurant and takeout delivery site.

Alibaba and Ant Financial, which agreed in June last year to each invest 3 billion yuan in Koubei for a 50 per cent stake, declined to comment on the fund raising.

In August, Alibaba said that Koubei generated about US$5 billion in payment volume through Alipay for the June quarter, 48 per cent more than the previous quarter.

Shares of Alibaba were little changed in New York trading and have climbed 27 per cent this year.

Local services, which have also attracted major investments by search giant Baidu Inc, are a key area of contention for Chinese internet companies as people turn to the web to order take-out food, beauty treatments and domestic helpers.

Chinese users of location-based services could rise 29 per cent to 400 million people in 2017 compared with this year, according to a research report by Shanghai-based Internet consultant IResearch.

Alibaba vice-chairman Joseph Tsai said the key differences between its two ventures is that Koubei focuses on customers when they go to a restaurant while Ele.me, where it owns a stake of about 20 per cent, is more about food delivery.

"Koubei focuses on the customers when the customers go to the restaurant, so they obtain information online mostly through a mobile device and then they may get coupons, discount coupons and whatever and they go to the restaurant and they pay with Alipay, all in a closed loop transaction," Mr Tsai said in June. "The Ele.me business is a food takeout business that requires last mile delivery, that's why we separated the two."

BLOOMBERG