Hertz's partner China Auto Rental Inc. has launched its initial public offering on the Hong Kong stock exchange. Photo via Hertz Corp.
The Hertz Corp.’s car rental partner China Auto Rental (CAR Inc.) has launched its initial public offering (IPO) on the Hong Kong stock exchange to help increase its rental fleet.
The expansion of CAR's fleet is intended to satisfy the growing demand for car rental vehicles in China, says Hertz. A research study on the market — cited in CAR's IPO prospectus — projects China’s car rental sector will enjoy a compound annual growth rate (CAGR) of 14% through 2018.
In its IPO prospectus, CAR reports it has the largest car rental fleet in China, one that is larger than the aggregate fleet size of the next nine largest car rental companies and over four times that of the second largest car rental company in China.
Hertz acquired a 19% stake in CAR in April 2013. Under the partnership, both firms are co-branded at more than 600 of CAR's directly operated service locations. Hertz is investing an additional $30 million into CAR in its IPO, says the company.
"Hertz's investment and partnership is a strategic alliance that demonstrates our confidence in CAR as the most recognized, trusted and successful car rental operation in China," said Brian MacDonald, Hertz’s interim CEO. "CAR's IPO marks a milestone in its development as leader of China's car rental industry."
The IPO should allow the Hertz-CAR partnership to expand its network further as CAR reports service locations in 70 major cities and 162 small cities as of June 30, 2014, according to Hertz. Managed by Morgan Stanley and Credit Suisse, the IPO will make more than 426 million shares available.
CAR has reported impressive growth in recent years. It has increased its fleet size from 25,845 vehicles in December 2011 to 52,498 vehicles in June 2014, and its customer base rose four-fold over the same period from approximately 450,000 to 1.962 million, according to the company.
CAR believes the increase is being fueled by a surge in business and leisure travel among Chinese customers, a rising number of licensed drivers who do not own their own cars and a greater demand from government bodies following regulatory reforms.
"The potential for growth in the Chinese car rental market is profound and we believe CAR is the strongest competitor,” said Naren Srinivasan, Hertz senior vice president of global strategy and corporate development. “When CAR expands its fleet, the partnership should be able to continue to thrive, with Hertz and CAR being co-branded at more than 600 locations in China. … "