The Business Times

Meituan sheds US$60b after China crackdown fears deepen

Published Tue, Jul 27, 2021 · 04:47 PM

[BEIJING] Meituan has shed more than US$60 billion of its market value over two frenetic trading sessions, after Beijing unveiled sweeping reforms against private-sector companies that darkened the outlook for the world's No 2 economy.

China's top food delivery company slid a record 18 per cent Tuesday in Hong Kong, on top of a 14 per cent plummet the previous day. Spreads on Meituan's dollar bond due 2030 rose 16 basis points to 232 basis points, set for the widest on record, Bloomberg-compiled data showed.

The Tencent Holdings backed company, already the target of an antitrust probe with uncertain outcomes, was among the biggest losers in an accelerating selloff that convulsed internet stocks after China ordered swathes of its US$100 billion private education sector to go non-profit.

The clampdown on the booming industry shocked seasoned China watchers, prompting a rethink of how far Xi Jinping's Communist Party is willing to go as it tightens its grip on the private economy. Meituan's losses deepened after the nation's powerful antitrust watchdog posted rules late on Monday ordering online food platforms to ensure their workers earn at least the local minimum wage, which appeared to target the sector's leader.

The guidelines weren't a surprise but the timing of their announcement was, Citigroup analyst Alicia Yap wrote. "We do see risks of slower profit growth and push out of near-term margins."

Investors fled Chinese tech stocks, bonds and currencies on Tuesday as a post-crackdown rout expanded. Meituan's stock has tumbled more than 50 per cent from its peak in February as the company grapples with scrutiny on multiple fronts. The food industry regulations added to a litany of regulatory woes.

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Beijing announced an investigation in April into whether Meituan violated anti-monopoly laws through practices such as forced exclusivity arrangements with restaurants. The company's also drawn criticism over the way it treats hundreds of thousands of low-income delivery riders, who were put to the test during the pandemic.

And chief executive officer Wang Xing himself has been warned to keep a low profile, Bloomberg News has reported, after the founder posted a controversial poem that convulsed markets and sparked a social media furor.

Mr Wang has detailed plans to address government concerns about its business practices. Among other things, the company has pledged to work with regulators and improve its compliance standards. It also promised to provide insurance for millions of its delivery drivers - many of them work as part-time personnel and lack proper employee benefits - and has started to reform its commissions scheme in a move to cut fees for partner restaurants.

Some analysts cautioned this week's selloff was overdone.

"We view share price pullback about guidelines details as overdone," Jefferies analyst Thomas Chong wrote. "Flexible worker protection is not new to market. Since 2020, Meituan organised about 100 sessions with riders and launched enhancement measures based on the feedback."

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