Mar. 5 (NBD) -- The world's first dockless bike-sharing platform Ofo has raised 1.766 billion yuan (278.4 million U.S. dollars) in financing from Chinese tech behemoth Alibaba by pledging its assets of shared bikes, according to the information released on the website of the National Enterprise Credit Information Publicity System.

According to the above-mentioned public filings, on February 5, 2018, Ofo pledged a total of 4,447,572 bikes in Beijing, Shenzhen, Shanghai and Guangzhou to Shanghai Yunxin Venture Capital Co., Ltd. for 500 million yuan (78.8 million U.S. dollars) in financing.

Later in mid February this year, the bike-sharing company pledged an unknown number of bikes to Zhejiang Tmall Network Co., Ltd., in exchange for another 1.266 billion yuan (199.6 million U.S. dollars).

A sum of 1.766 billion yuan (278.4 million U.S. dollars) had been raised from these two Alibaba-backed companies.

It's also noteworthy that in October 2017, Ofo's shareholder Ofo (HK) Limited signed a charge for securities and deposits with Hong Kong and Shanghai Banking Corporation, according to a filing to the Companies Registry of the Government of the Hong Kong Special Administrative Region.

When reached by NBD for comments, Ofo's public relation director said "no comment".

Guo Tianyong, head of the China Banking Industry Research Center at Central University of Finance and Economics in Beijing, said to NBD that since investors naturally want some guarantees on their investment funds, company pledging movable property in exchange for money seems more secure in the eyes of investors.

Photo/Shetuwang

Ofo is the first bikesharing company that has been reported to raise fund by mortgaging its shared bikes.

A senior investment consultant told NBD that a pledge is generally aimed to raise money, and financing absolutely requires related collaterals or guarantees. Any valuable asset can be the subject of a pledge, the consultant noted.

Chen Liteng, an analyst at Hangzhou-based China e-Business Research Center, held that the shared bike business is an important payment scenario for Alibaba to tap into, adding that frequent use of the bike rental service and payments will enhance customer loyalty.

Considering Alibaba's old rival Tencent has invested in Mobike, one of China's bike-sharing giants, it's reasonable for Alibaba to invest in Ofo, Chen further explained.

Chen believed that the injection will alleviate Ofo's tight cash flow. However, some analysts stated that mortgage finance will likely bring risks to customers.

Li Junhui, an intellectual property expert at China University of Political Science and Law, noted that if the bike rental company charges customers guarantee deposit for the use of a bike and at the same time pledges the same bike to other organizations for fund, it means that the ownership of the bike is subject not only to customer deposits, but also to certain pledging obligations, hence risks related to customers' fund security.

Li further pictured the scenario where customers may find problems in refunding the deposits when a bike-sharing company embezzles customer deposits and pledges the bikes to a third party.

Concerns and questions arise concerning the sequence of customers or creditors getting payment first when a company goes into liquidation as well as the legal standard to determine the sequence.

With regards to such questions, Zhou Bing, general manager with Sichuan Haocheng Enterprise Liquidation Firm Co., Ltd., said to NBD that as a general rule, when a company goes into liquidation, its remuneration to employees, taxes and social insurance expenses are the first to be paid. After that, creditors holding a pledge have the priority rights to claim payments over other creditors. Since customer deposits can't be clearly separated from a company's business property, customers would be grouped into general creditors and will be paid after the secured creditors get payments in full.  

Chen commented that bike-sharing platforms, to date, haven't walked out of the heavy reliance on fundraising and they will face more severe challenges if they can't find an effective profit mode.

Email: gaohan@nbd.com.cn