Uber: fare value
Bond sale moves the group a step closer to its ultimate goal: an IPO
Uber may not make any money but it has a gift for raising it. The ride-hailing company’s first sale of bonds is likely to be popular. A generous yield and a level-headed boss are catnip to credit investors — even if the borrower does not come close to turning a profit.
The set-up, however, is slightly odd. After issuing five and seven-year leveraged loans Uber is planning to sell $1.5bn of bonds with similar maturities and a similar level of secrecy. But the bonds will be placed privately, rather than offered to public markets, meaning they will be less liquid and therefore pricier for the company. Estimates put the yield on an eight-year bond at about 8 per cent, uncomfortably close to the yield on Tesla‘s 2025 bond yield following the company’s regulatory disgrace.
Uber has its own problems. Competition is fierce. Lyft wants to list next year and Grab has conquered the market in south-east Asia. Drivers still complain that working conditions are unfair. In the US, Uber drivers earn less than $10 an hour once vehicle costs are taken into account, according to Ridestar. That is less than Amazon’s new minimum wage.
Still, Uber’s prospective bond yield is more a reflection of the jump in US Treasury yields than the company’s own problems. But its determination not to allow more investors to peek under the bonnet also is a factor. Selling bonds publicly might knock off a few basis points.
Why raise the money at all, then? Partly because Uber cannot yet pay its own way and partly because chief executive Dara Khosrowshahi is full of schemes to expand the company’s reach, including driverless cars, bikes, scooters and deliveries. Net losses at the end of the second quarter came to $890m, even as net revenue rose 60 per cent. But the company’s flair for fundraising meant there was $7bn of cash at the end of June.
Uber’s real incentive in selling the bonds is administrative. Bankers are on board and the company is preparing to provide regular financial updates. It is inching closer to the ultimate goal: an IPO.