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Grab and other IPOs highlight major opportunities and hidden risks

Southeast Asian tech boom is an important test of governance standards

Grab Holdings plans to go public in the U.S. by merging with a listed SPAC called Altimeter Growth. (Source photo by Ken Kobayashi)

SINGAPORE -- Southeast Asia is enjoying a technology boom. Grab's record blank-check deal with a special purpose acquisition company, which will value the business at nearly $40 billion, rings in a new era for a region whose tech industry has trailed behind Asian peers including China and India.

Grab, which offers ride-hailing, deliveries and financial services, will join Sea Group, the Tencent-backed ecommerce and gaming group, in being listed in the U.S. Sea, also headquartered in Singapore, was one of the best-performing stocks globally in 2020 thanks to its surging Shoppee online commerce platform.

Meanwhile, Indonesian unicorns Gojek and Tokopedia, which are set to merge and rebrand as GoTo, will also target an initial public offering in the U.S. later this year. More will follow, fueled by the explosion of global capital and the proliferation of SPACs allowing a swifter and easier path to markets. Other regional unicorns, including Traveloka and Bukalapak, have already indicated they intend to go public.

The amount of money tied up in this boom is extraordinary. Billions of dollars of private capital from the likes of SoftBank, Uber, Facebook, Google, Microsoft, Tencent, Meituan and many others have been pumped into these companies as they burn through cash battling for market share across the highly competitive economies of Indonesia, Thailand, Vietnam and others.

But the Southeast Asian charge onto Western stock markets is also an important test of governance standards in Asia. This is a region known for historically having incomplete corporate governance architecture. Scandals involving U.S.-listed Chinese companies serve as a reminder that a sparkling market debut can hide broader problems.

Companies and investors operating in Southeast Asia's markets know that regulators, politics and business are messily interlinked, while corruption remains a huge issue.

In its filing, Grab outlined several risks, including an investigation it launched into potential violations of anti-corruption laws related to its operations in one country. The company reported the potential violations to the U.S. Department of Justice and has declined to comment further.

Meanwhile, Anthony Tan, Grab's founder and chief executive, is being granted 60.4% of the voting power in the company despite holding just a 2.2% stake. A founder having a high degree of control is neither unusual nor illegal, but Tan's having so little equity skin in the game could unnerve some investors.

Indonesian conglomerate MNC Group, which unveiled a plan to list its video streaming subsidiary Asia Vision Network on the Nasdaq exchange via a SPAC merger in March, is controlled by Hary Tanoesoedibjo. The globetrotting businessman is former U.S. President Donald Trump's business partner in Indonesia and has faced a string of allegations of intimidation and corruption in recent years. Tanoesoedibjo has said accusations were politically motivated.

U.S. investors have already experienced dodgy practices by Chinese companies. Who could forget Luckin Coffee? U.S. regulators hit the "Starbucks of China" with a $180 million penalty after finding that the scandal-plagued Chinese chain altered bank records and set up a fake database as part of an effort to falsify its accounts.

Other Chinese companies, including internet streaming platform iQiyi, tutoring provider Tal Education and technology group Joyy, have been attacked by short-sellers or investigated for alleged fraud.

That said, Western companies have proven themselves just as capable of poor corporate governance or a scandal or two, as the Wirecard saga and countless other incidents show.

But some skepticism is warranted. Sea shares rocketed up 395% last year even though the company has never been profitable and is unlikely to become so soon. The massive run-up in its stock has left some analysts scratching their heads.

Meanwhile, Grab has also lost money every year since its inception and does not expect to make a profit until 2023. It is burning through even more cash than Sea -- last year Grab reported a net loss of $2.7 billion against net revenues of $1.6 billion. Accumulated losses hit $10 billion at the end of 2020.

Investors will likely make the call that the risk is minimal, at least with the big names that have been operating for the better part of a decade like Grab, Gojek and Tokopedia.

After all, never before have public investors had such access to Southeast Asia's internet economy. This is a dynamic region of some 655 million people who have leapt online in recent years. Investing in Grab and others is one of the easiest ways to get exposure to that boom.

Mercedes Ruehl is the Financial Times' Asia Tech reporter based in Singapore. She writes about technology and investment in Asia, from startups and entrepreneurs to the region's biggest companies.

She previously led the Financial Times' newsletters and audience engagement team in Asia. Before that, she spent six years reporting in Australia on business, finance and politics for The Australian Financial Review and The Sydney Morning Herald.

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