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Tencent-Backed Pinduoduo Set US IPO Price at Top of Range

Chinese group-buying site Pinduoduo backed by the tech giant Tencent will price its US initial public offering at $19 per American depositary receipt (ADR) to raise up to $1.63 billion in one of the biggest flotations by a Chinese company this year, according to people familiar with the matter.

Pinduoduo’s decision to price the IPO at the top of a range between $16 and $19 comes after the flotation was oversubscribed by 20-fold from investors including Fidelity Investments and the sovereign funds of Abu Dhabi, according to the source. The price will bring the company’s market cap above $24 billion.

Pinduoduo said it would issue 85.6 million ADRs and will debut Thursday on the Nasdaq Stock Market.

Pinduoduo is the latest Chinese technology company tapping overseas capital markets to bolster coffers amid intensifying competition with domestic rivals, notably e-commerce heavyweights Alibaba Group Holding Ltd and JD.com Inc.

Pingduoduo was founded in 2015 by ex-Google engineer Huang Zheng, Pinduoduo operates a bulk-buying business model similar to Groupon in the US.  Huang, also chairman and CEO of Pinduoduo, holds 46.8 per cent stake in the company with 89.9 per cent voting rights.

According to US regulatory filings, the company had attracted over 300 million active buyers and more than 1 million merchants to its platform. Its gross merchandise volume exceeded 100 billion yuan last year, a milestone which took Alibaba’s Taobao marketplace five years while JD.com 10 years, boosted by low-priced products and a large user base in China’s smaller cities.

Investors and analysts believe its rapid growth is also attributable to the online traffic derived from Tencent’s messaging app WeChat, which helps direct many of its more than 1 billion users to Pinduoduo.

“We believe WeChat accounts for the majority of buyer traffic, and Pinduoduo could not have built up its large user base cost-effectively and rapidly without WeChat,” wrote Arun George, a technology analyst who publishes on independent research platform Smartkarma.

Pinduoduo’s revenue has grown sharply to 1.38 billion yuan in January-March from 37 million yuan in the same period one year earlier, while its net loss remained steady at 201 million yuan.

China Renaissance, CICC, Credit Suisse and Goldman Sachs are advising Pinduoduo.

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