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Softbank’s yet-another WeWork ‘makeover’, this time China amid epidemic
CKN
2020/03/06 01:07:57
3,690

Mar 06, 2020 (China Knowledge) - Softbank, through its vision fund, reportedly invested USD 1 bln each in Ziroom and Beike, both are offshoots of Chinese real estate brokerage Lianjia, or Homelink. Both Ziroom and Beike are online platform real estate with a little twitch on the leasing side of business.

Fame for its thousands times return in investing Alibaba that earned over USD 160 billion, Softbank separately invested USD 500 mln directly into Beijing-based Ziroom and bought an additional USD 500 mln of shares from its founders. This investment valued the firm at USD 6.6 bln.

For Beike, apart from Softbank’s USD 1 bln, Hillhouse Capital Group, Tencent Holdings and Sequoia Capital have invested an additional USD 500 mln, and this has made Beike’s value at slightly more than USD 14 bln in this round.

Online housing property portals, such as Ziroom and Beike, basically collects house sources from landlords. Then decorate and renovate after negotiating rent and service period that are of average more than 3 years. This churns out the value proposition of houses being leased for higher prices to tenants through the platform. Their major incomes fundamentally derive from rent differences and service charges.

One comparable to Ziroom and Beike is newly listed Danke (DNK.N), one of their rivals, which went on board NASDAQ on Jan 17, the first Chinese company's IPO on the U.S. stock market this year. Before its IPO, Danke suffered huge losses of up to RMB 2.5 bln in the first 9 months of 2019. On the first trading day, its share price broke through the initial price, followed by a big drop of 14.8% in the next two months.

Affected by the sudden and unexpected long period of COVID-2019 epidemic outbreak in China from late Jan till today; and, possibly months to come, domestic real estate sector across China has seen a deadly decline. Many online property portals are experiencing poor sales, and few viewers of properties. Big player like Homelink’s main business has suffered with rental income from secondary house in 18 key cities totally fell by half in Feb. Moreover, number of new listings of properties plunged 52% month on month, 74% year on year in February.

Now, with the backing of Softbank's investment, will Ziroom and Beike receive the unyielding financial backing from their Japanese investor during this tough time? Is billion dollar rescue plan of WeWork by Softbank chairman & CEO Masayoshi San be happened again?

If past cases are reliable reference, both investees may ride out the cash-flow issue and to buy time to find a viable profit model. A merger between the two could also result from this trying time, and an option to slow cash burn. Market will continue to watch closely yet another Softbank’s stunts to salvage billion dollar-invested business conundrum; and, of course, the future IPO of Ziroom and Beike, or a merged entity when listing.

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