Two U.S. Hyperloop Startups Line Up Financing From China

(Bloomberg) -- A pair of startups in Los Angeles developing hyperloop transportation projects said Thursday that each had lined up financing commitments from Chinese state-backed companies.

Arrivo, founded by a former senior engineer at Elon Musk’s Space Exploration Technologies Corp., said it secured a $1 billion credit line with Genertec America Inc., a subsidiary of a Chinese state-owned entity based in Beijing that has helped finance and build high-speed rail and other infrastructure projects in Iran, Turkey and elsewhere. The credit line will go to backers of a future project using Arrivo technology, not to the startup itself.

Separately, Hyperloop Transportation Technologies said it plans to work on a 10-kilometer test track in Tongren, part of China’s Guizhou province, at an initial cost of about $300 million. State entity Tongren Transportation & Tourism Investment Group will provide half the funds and seek private investors for the other half, HyperloopTT said. The precise route is yet to be determined.

Lining up potential funding helps solve one of the biggest obstacles for hyperloop systems: They will be extremely expensive to build.  While the businesses operating in the field—including Musk’s Boring Co. and Richard Branson’s Virgin Hyperloop One—have raised enough capital to fund their own operations, the money required to build a system needs to be raised separately, on a project-by-project basis. In the five years since Musk introduced the concept of a hyperloop to the public, no company has built a commercial version.

“There’s a lot of companies working on future solutions, and that’s great,” said Brogan BamBrogan, Arrivo’s chief executive officer. “Wider freeways is never a good answer.”

Large-scale infrastructure projects are typically private-public partnerships, paid for with a mixture of debt and equity. A tentative deal between Chicago and Boring Co. would create what they call a Loop system in that city without the use of taxpayer money.

Arrivo has said it’s working with officials in Denver on possible routes, but the talks are early. Denver is assessing regional transportation options as it explores a bid for the 2030 Winter Olympic Games. Arrivo said it’s in discussions about possible financing options and construction partners in at least five other locations around the world, which the company declined to name.

BamBrogan’s vision is to zip people and cars over relatively short distances within metro areas at speeds of around 200 miles per hour. Like Boring Co., it would use pods traveling through enclosed tubes to reduce drag and guard against weather. Other systems, like Virgin Hyperloop One’s and HTT’s, would go longer distances.

Executives at Arrivo said the Genertec debt could be used to construct a project using the company’s technology anywhere in the world, not necessarily in China. The money won’t be used to fund the company’s operations. The $1 billion financing would be enough to build as many as three legs of a commercial, citywide hyperloop system of 6 miles to 9 miles per section, said Arrivo co-founder Andrew Liu. Would-be backers of an Arrivo project could combine the Genertech loan with money from other entities.

If the Genertech cash goes to a U.S.-based project, it could draw the sort of unwanted scrutiny that has come with many China-led investments during the Trump administration. Because the financing would take the form of a loan, it should be able to avoid stricter U.S. government oversight that has held up some equity deals.

Genertec and Arrivo executives have been talking since late last year, when they were introduced by an investment banker who knows Arrivo co-founder David Pendergast from the time when they both worked in Hong Kong.

©2018 Bloomberg L.P.