Alibaba to Raise Around $1 Billion for Koubei Local-Services Platform

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A customer scans a QR code to pay with Alipay at a supermarket in Hangzhou last December. In the quarter ended in June, Koubei recorded $5 billion in payments through Alipay. Photo: Zuma Press

Chinese internet giant Alibaba Group Holding Ltd. BABA 0.49 % is planning to raise about $1 billion to fund the expansion of its local-services platform, Koubei, which could value the venture at nearly $8 billion, according to people familiar with the situation.

The new fundraising would bring in outside investors to set a valuation benchmark for the business, according to the people. Koubei, which operates in the competitive field of online orders for offline services such as food delivery, has thus far been funded largely by Alibaba and its financial affiliate Ant Financial Services Group. The outside fundraising could set up the operation to become more independent, allowing it to list shares as a separate entity eventually, the people said.

The terms of the deal haven’t been completed and could change as Alibaba negotiates with potential investors. The Chinese online-shopping company has hired Credit Suisse Group AG CS 2.54 % to reach out to a small group of prominent international investors that already have close relationships with Alibaba for the deal, they said.

Alibaba and Ant Financial together put nearly $1 billion into Koubei—which means “word-of-mouth reputation” in Chinese—for 50% equity stakes in the operation when it was launched in June 2015. The two have since also made a combined $1.25 billion investment in food-ordering app Ele.me.

China’s internet giants have sought to expand their shares of the fiercely competitive market for smartphone applications connecting users with brick-and-mortar services such as taxi rides, food deliveries, restaurant bookings and movie ticketing. Alibaba had been an early backer of Meituan, China’s biggest online seller of movie tickets and restaurant bookings, but it offloaded its stake after it clashed with that company’s founder, Wang Xing. Meituan decided to merge with Dianping, a competing service backed by Alibaba rival Tencent Holdings Ltd. TCEHY 1.34 %

Koubei initially focused on food-and-beverage deliveries, but has expanded into other online-to-offline services by allowing merchants to set up virtual stores on its platform. Koubei has grown rapidly, even though it remains unprofitable. In the quarter ended in June, Koubei recorded $5 billion in payments through Ant Financial’s Alipay service, up 48% from the previous quarter, Alibaba said in its latest earnings release. Alibaba said its share of Koubei’s losses in the quarter totaled $37 million.

Many startups have burned out in the battle to attract users with heavy discounts and subsidies, but the likes of Alibaba and Tencent say they have deep pockets and supporting services such as maps, data and payments platforms to give them an edge over smaller, stand-alone competitors.

Write to Rick Carew at rick.carew@wsj.com

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