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Uber Sells $1.2 Billion in Junk Bonds to Help Fund its Acquisition of Dubai-based Careem

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【Summary】Uber sold a larger-than-expected $1.2 billion of bonds rated in the lowest tier of junk this week. The proceeds of the bonds will be used to help fund its $3.1 billion purchase of Dubai-based ride-hailing company Careem, Uber’s biggest competitor in the Middle East region.

FutureCar Staff    Sep 13, 2019 3:30 PM PT
Uber Sells $1.2 Billion in Junk Bonds to Help Fund its Acquisition of Dubai-based Careem

Ride-hailing giant Uber Technologies is selling junk bonds to help finance its acquisition of Careem in its first debt offering as a public company. 

Uber sold a larger-than-expected $1.2 billion of bonds rated in the lowest tier of junk. Strong demand for the notes, which mature in 2027, allowed Uber to raise more than the $750 million it originally targeted. The ride-hailing company priced the bond at a yield of 7.5% after receiving orders worth around $2 billion, according to Bloomberg.

Junk bonds are typically issued by a company seeking to raise capital quickly. The proceeds of the bonds will be used to help fund its $3.1 billion purchase of Dubai-based ride-hailing company Careem, Uber's biggest competitor in the Middle East region.

It's only the second bond sale in Uber's 10-year history, and the first since it went public earlier this year. The firm issued $2 billion of debt in its debut offering last October, increasing the size of the two-part deal as orders for the private placement swelled.

Uber announced in March that is reached an agreement to acquire Careem for $3.1 billion, consisting of $1.7 billion in convertible notes and $1.4 billion in cash. The transaction is expected to close in Q1 2020. Careem, which operates in over 100 cities in the Middle East, Africa and South Asia, was valued at over $2 billion as of 2018.

Uber is acquiring all of Careem's mobility, delivery, and payments businesses across the greater Middle East region, ranging from Morocco to Pakistan, with major markets including Egypt, Jordan, Pakistan, Saudi Arabia, and the United Arab Emirates.

Upon closing, Careem will become a wholly-owned subsidiary of Uber, preserving its brand.

Uber marketed its latest offering broadly to investors as the newly public company struggles to make money. Uber said it would buy Careem in March, marking the largest deal of Chief Executive Officer Dara Khosrowshahi's tenure. The deal is expected to close in the first quarter of 2020.

Bloomberg reports that Morgan Stanley, Bank of America, Goldman Sachs Group, Citigroup, Barclays, HSBC Holdings, SunTrust Banks and Royal Bank of Canada are managing the bond sale.

Since becoming a public company in May, Uber's stock price is down about 25% since its IPO of $45 per share and the company has been burning through cash at a high rate. The stock closed at $33.25 on Friday. 

Last month, Uber reported a $5.2 billion loss for the second quarter of this year.

resource from: Bloomberg

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