Auto site Guazi to raise funds with ABSs

03 Jul 2017

Guazi ershouche, China’s leading used-autos vertical, will issue asset-backed securities (ABSs) in collaboration with Baidu Finance, the company announced. It is understood this will be the first time Guazi issues securities backed by auto credit extended to consumers. Gauzi has yet to disclose details of the security itself, including the value of the issue.

By stressing the fact that Baidu Finance will underwrite the issue as third party, Guazi is presumably addressing potential concerns over the stability of collateralized, repackaged debt obligations. (We all still remember the worldwide devastation caused by U.S. banks in 2008, which bundled home loans into what became known as junk bonds – editor.) Baidu Finance also handled the credit-rating of the respective packages of debt obligations, and the cross-checking with the internal data held by Guazi itself.   

Together, Guazi and Baidu Finance will also explore the possibility of issuing loan-backed securities (LBSs) in future.

By issuing ABSs for funds, Guazi is following in the footsteps of the pioneers of the model, namely Bitauto (NYSE: BITA) and Tencent-backed Yixin Group. The latter has issued several batches of ABSs in the past 12 months, most recently securing 2 billion RMB ($290 million U.S.) in funding from just one issue.  

China’s ABSs market is still in it’s earliest stages, with just seven such issues having been made in 2015, and 51 in 2016. This figure is expected to rise considerably in 2017. 

Baidu, Baidu Finance’s parent, was one of the four initial backers of Yixin Group, and likely played a role in the issues of Yixin Group as well.

Guazi’s vehicle-credit business was first launched in December 2016, and since then it has been made available to users across 150 cities in China, and the value of loans applied for in a single month has already broken the 10-million RMB ($1.5 million U.S.) barrier. 

Guazi’s financing services are backed by its former parent company, and strategic investor 58.com, which operates its own auto-financing service, 58che Shangkuan, as part of its 58che.com platform. Alibaba (NYSE: BABA) offers a similar service through its Chemiaodai app.  

Last month Guazi completed a $400 million U.S. funding round, led by Sequoia Capital China, H Capital, CMB International, Jingxin Venture Capital, Dragoneer Investment Group, as well as existing investors Matrix Partners China and BlueRun Ventures. 

Guazi estimates approximately 50 percent of the users of its platform are in need of some kind of loan, but only approximately 5 percent of used-vehicle purchases in China are currently financed by credit.  

The Chinese auto-loan market is not likely to remain so undersupplied for long. The business and finance site 36kr.com suggested the possibility of an 85-percent expansion in the online auto financing sector by just 2018.

Guazi is currently helmed by Yao Haochong, who was previously the founder and CEO of classifieds site Ganji, which was itself acquired by 58.com in 2015.

Guazi wins defamation case against blogger

Guazi is today celebrating a dubious victory in a defamation case brought against a blogger. Guazi first brought the defamation case against the blogger, Yang Shijie, and his employer Beijing Zhiwei Sike Ltd., in March.

A verdict has now been handed down in the case by the People’s Court of the Fengtai District of Beijing, stating that Beijing Zhiwei Sike Ltd. did infringe on Guazi’s rights, and that it must pay compensation for losses incurred by Guazi as a result of its actions. The total amount of this compensation was not disclosed.

The case stems back to an article by Yang Shijie, published on WeChat, entitled “Some cold realizations behind the heating up of the battle for used auto.” Guazi accused Yang of making “misleading and disparaging” statements in the article.

Closer inspection of the offending article (still hosted in Taiwan here), offers little to explain why a lawsuit was necessary on Guazi’s part. The article makes several references to the then recently-concluded unfair competition lawsuit brought by Uxin against Guazi (which we reported on here). Somewhat ironically, that suit accused Guazi of “fabricating and disseminating false information” via partners in the media.

Yang’s article also claimed that Guazi’s 200-point inspection system was little more than a marketing gimmick.

The article apparently acquired some notoriety online, causing what Guazi claims were material damages to its business. While the court’s determination that the article was in several instances factually inaccurate seems plausible, the assertion that it was malicious in intent – central to any defamation case – feels far harder to justify.

The final report on the case has yet to be issued, so expect some final information on compensation to trickle out in the coming days.

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Tom Marling

Tom is a PhD candidate in Chinese History at Hong Kong Baptist University, and former PR consultant in Mainland China. He joined the AIM Group in 2016 as a writer/analyst.