BANGKOK -- Thai fintech startup Fraction cleared its final regulatory hurdle and is on its way to helping property owners fractionalize their stakes in real estate, then sell the tiny pieces to small investors for as little as 5,000 baht ($150).
The Security and Exchange Commission recently awarded Fraction a license to set up an initial coin offering portal, according to a statement released by the company on last Thursday. ICO portals screen listings of not only cryptocurrencies but all digitized assets in a blockchain, verifying issuers' identities and suitability, and conducting due diligence.
"We have obtained regulatory approval and can now enable financial inclusion, letting small investors participate in attractive asset classes that used to be inaccessible," said co-founder and CEO Eka Nirapathpongporn.
The license is essential for the services Fraction intends to provide. The company intends to help issuers digitize ownership of their assets, then digitally fractionalize that ownership so the pieces can be listed through an initial offering. The startup will also provide an Ethereum-based trading platform so these fractions of holdings can be traded.
Conventional share trading involves many intermediaries, such as financial institutions, brokers and a bourse, resulting in large fees. Fraction's end-to-end service trims these costs. Eka, a former managing director and partner at New York-based financial advisory Lazard, said his company could aid in preparing prospectuses and clearing regulatory hurdles for initial offerings, thanks to his previous experience.
Fraction is based in Bangkok and Hong Kong. Its first listed fractionalized assets are expected to be in Thai real estate. The company has signed a Memorandum of Understanding with large Thai property developers seeking initial offerings of projects with an aggregate value of over 15 billion baht ($462 million).
The developers are Charoen Pokphand Group's property arm Magnolia Quality Development, Charn Issara Development and Nirvana Daii. Fraction expects the first initial offering to open for subscription on its platform in the first quarter of 2022.
For investors, Fraction says it can be a gateway to high-profile real estate holdings. A 5,000-baht fraction will allow small investors to diversify into assets that have been much too pricey for them. For developers, the startup's approach could increase the number of potential buyers, raising demand.
The company looks to raise capital for an expansion plan that involves listing a variety of assets and expanding overseas. Art pieces, vintage cars and vintage watches could be candidates for new assets, according to Eka.
"We would not list cryptocurrencies because we will be involved in competition with many coin exchanges that exist around the globe," the co-founder and CEO said in an exclusive interview with Nikkei Asia. "Fraction would rather list unique assets so that people would have to come to us to invest in them, just like people will have to go to Nasdaq to invest in Apple's shares."
Fraction believes it has a first-mover advantage. "While many have been talking about it or trying to do it, our platform is completed, already up and running, and ready to list public assets," said Shaun Sales, co-founder and chief technology officer.
Eka said the company's end-to-end unified platform is one-of-a-kind. But competition is on the way. On Sept. 10, SIX, Switzerland's Stock Exchange, won regulatory approval to launch an exchange for asset-based digital tokens. Thomas Zeeb, the bourse's global head of exchanges, hinted it could offer assets like art and real estate, though its focus will be on offering stocks and bonds in the form of digital tokens.
Eka said players sliding into Fraction's niche can only help his company. "The size of the current capital market is one third of that of the world's property market," he said. "With the size, newcomers will only serve to promote blockchain-based trading platforms and educate issuers and investors on using them, instead of inducing too much competition."