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Grab and rivals draw interest through blank-check groups

Southeast Asian startups consider IPOs following Sea's share price rise

Grab and Gojek drivers negotiate traffic in Jakarta. (Photo by Ken Kobayashi)

SINGAPORE -- Humans place a higher value on objects that are scarce. The prices of hand sanitizer and masks that whisked off the online marketplace shelves during the early days of the coronavirus pandemic last year provided evidence of that.

We can apply this principle to investing. And it is being borne out in the number of listed Southeast Asian technology unicorns -- startups valued at over $1 billion.

In brief, there are not many. And that has produced pent-up demand for the region's startups that do tap international markets.

This week Grab, Southeast Asia's biggest unlisted startup, announced it had upsized its term loan launched in December from $750 million to $2 billion following commitments from investors, more than half of which were U.S.-based institutions including BlackRock, Carlyle, Eaton Vance and Anchorage.

The demand has even prompted the company, whose "superapp" offers a range of services from ride-hailing to food delivery to payments, to consider an initial public offering in the U.S. this year.

If Grab does go public it would join Sea Group, the Tencent-backed gaming and e-commerce company, as one of the few publicly traded Southeast Asian tech giants.

Sea's share price rose nearly 400% last year as more and more investors bought into its story, making it one of 2020's best performers.

The stock is one of the few opportunities available to invest in Southeast Asia's 655 million people, who make up one of the world's fastest-growing mobile populations.

Roughly 40 million people came online in Southeast Asia last year, compared to 100 million between 2015 and 2019 and only 10 million from 2018 to 2019, according to a 2020 report by Google, Temasek and Bain & Co. That means there are 400 million users in Southeast Asia -- about 70% of the region's population.

Kenny Liew, a technology analyst at Fitch Solutions, says that after a decade of investor interest focused on U.S. and Chinese tech players, companies like Grab and Sea have come into the spotlight as a way to access this "frontier market."

Could that be about to change?

The injection of the so-called special-purpose acquisition companies, or blank-check groups, into the equation could level the playing field and give investors more choice. A handful of the SPACs have emerged in recent months targeting Southeast Asia's tech industry.

Under the arrangement, sponsors raise capital by listing SPACs and then hunting for a company to acquire or merge with. The structure provides companies an alternative route to going public to expensive and time-consuming initial public offerings.

Asian bourses, including Singapore Exchange, are already considering a SPAC regime to take advantage of the demand and keep the region's unicorns from flocking to U.S. markets.

There are other companies that could take this route. Gojek, Grab's Indonesia-headquartered rival, is in advanced negotiations with Jakarta-based e-commerce unicorn Tokopedia to create a $17 billion tech conglomerate. If the talks are fruitful, the merged company will be listed later this year. At least some of the drive to list has followed the recent success of Sea, which also has exposure to Indonesia.

There are plenty of other regional tech startups in the $500 million to $1 billion range that could also be candidates.

There are some considerations for investors, certainly. Some analysts believe that Sea's $110 billion valuation is too high, given that it is a loss-making company, for example.

Grab, Gojek and Tokopedia are similarly among the most highly valued private tech companies in the region. They are also yet to become profitable operations.

This hasn't stopped interest from big names. Silicon Valley billionaire Peter Thiel and Hong Kong businessman Richard Li have together already launched two Southeast Asia tech SPACs since October. Tokopedia has been reported as one of their targets.

By this time next year, Grab and Sea may well be just two of many different options for investors vying for exposure to Southeast Asia's internet growth.

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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