Uber reportedly has landed a significant investment from Chinese fund manager Hillhouse Capital Group that could reach $1 billion.
According to people with knowledge of the deal, quoted by the Wall Street Journal, Hillhouse Capital is the lead investor in a group that will buy convertible bonds in Uber that will convert into shares at a discount to the company’s IPO price. The deal has yet to be finalized.
Uber did not immediately respond to requests for comment.
The investment is said to be in Uber’s global parent company and not directly in Uber’s China operations, but as the on-demand transportation ramps up efforts in China, the extra funds could help it battle incumbent on-demand transportation services, such as the current largest taxi-hailing app in the country, Didi Kuaidi.
“At this point, the competition in China is strong,” said Minyuan Zhao, an associate professor of management at the Wharton School of the University of Pennsylvania, who specializes in global strategy. “Just as eBay and Amazon experienced when they tried to compete with Alibaba, it’s tough competition. There’s almost already a monopoly in Didi Kuaidi.”
According to Zhao, Uber will likely face an uphill battle in China because services like Didi Kuaidi have been there longer and know how to navigate local regulation. But this hasn’t dissuaded Uber from bringing its business to China, with Chief Executive Travis Kalanick recently detailing to investors the company’s plan to spend $1 billion to expand its Chinese operations.
China is a significant market for Uber because of its size and the earning potential of such a large market, Zhao said. Carving out a portion of the Chinese market for itself could perhaps justify the company's whopping $40-billion valuation. But it won’t be easy.
“Uber has a good reputation in China — it uses quality cars and appeals to those who want quality and reliability,” Zhao said. “But throwing current incumbents off the throne will be a big challenge."