OFO Inc. has mortgaged part of its bicycle fleet to companies affiliated with Alibaba Group Holding Ltd. to raise 1.76 billion yuan (US$278 million), as the Chinese bike-sharing startup works hard to solve its reported cash crunch.

The delivery of funds will be divided into 100 million to 200 million yuan every month for approximately nine to 18 months.

The first such mortgage deal in the bike-sharing sector highlights Ofo’s heavy reliance on fundraising to maintain operations amid its mounting competition with Mobike Technology Co. Ltd.

Since September 2017, Ofo had announced a new fundraising round of roughly US$1 billion on its way. However, the investors had not been nailed down, and Ofo did not officially confirm the arrival of the funds.

Ofo mortgaged roughly 4.45 million bikes in Beijing, Shanghai, Guangzhou and Shenzhen to a company translated as Shanghai Yunxin Entrepreneurship Investment Co. Ltd. on Feb. 5, according to National Enterprise Credit Information Publicity System. Shanghai Yunxin’s legal representative is Jing Xiandong, CEO of Alibaba’s financial affiliate Ant Financial.

Seven days later, Ofo mortgaged again an undisclosed number of its bicycles to Zhejiang Tmall Technology Co. Ltd., which is also affiliated with Alibaba.

Guo Tianyong, a researcher at the Central University of Finance and Economics, said mortgage assets can give investors a sense of security when they pour money into startups.

The deal came after bike-sharing companies saw a plunge in orders due to cold weather in many Chinese cities in the winter, which motivated many users to withdraw their deposits.

Meanwhile, Ofo is also in a tense relationship with its investor Didi Chuxing, the country’s largest ride-hailing company, after Ofo CEO Dai Wei had disagreements with executives sent out by Didi to help Ofo better run its business.

(China Daily)