And the funding war between Cab aggregators is getting hotter and hotter. As per rumors coming in from the Wall Street Journal, Uber is in the process of finalizing terms for a $1-2 Billion leveraged loan.
If true, the rumors would mean that Uber has added a massive $5.5 billion to its war chest in a matter of weeks. In case you havent been following the news, the company closed a $3.5 billion equity round from Saudi Arabia’s Public Investment Fund, merely two weeks ago.
The size of the investments being realized by Uber and Arch-Rival Didi Chuxing is certainly stupefying. To put things in perspective, there are companies, large companies, that have a total valuation well under the sums being raised by these corporations.
Coming back to the WSJ report, Uber has apparently taken up the services of Morgan Stanley, Barclays PLC, Citigroup Inc. and Goldman Sachs Group Inc. to sell a leveraged loan ranging between $1 billion to $2 billion to institutional investors. The company hopes to raise new funds to counter the influence of competitors as well as fuel its expansion.
Meanwhile, assuming the rumors to be true for the sake of discussing their implications, the fact that Uber is raising further funds as debt and not equity is certainly very interesting. The company so far relied heavily on the latter, raising $12.51 billion in equity financing since 2009 as opposed to just around $2 Billion in debt financing.
However, raising funds through equity has the side effect of diluting the stocks held by company employees and Uber seems to have had enough of that. However, while leveraged loans do not lead to dilution, they usually come with higher interest rates than traditional debt financing — and may even carry variable interest rates — every borrower’s nightmare.
Meanwhile, Uber is probably hoping to counter fluctuating interest rates by an inflow of profits brought about by the rapid international expansion its been eyeing for quite some time now. Definitely a risky business but if the rumors of the loan are true, then Uber probably believes it can pull it off.