Southeast Asia Tech Giant "Go Public" Competition

Analysts and media reports project that 2021 will be a vibrant year for Southeast Asia's tech ecosystem as the region's tech giants are keenly eyeing initial public offerings (IPOs). The breakthrough came in 2020, when e-commerce unicorn Tokopedia was reported to be exploring options for listing through a special purpose acquisition company (SPAC) in December and appointed Morgan Stanley and Citigroup as advisors.

Not long after, word got out that Traveloka, another unicorn based in Indonesia, was considering IPO through the same scheme. The company had to weather the turbulence of the past year, when the travel and hospitality industry stalled around the world. However, in January, Traveloka CEO, Fery Unardi, told Bloomberg that business had recovered and the company was considering a path to follow, such as the SPAC merger for this year's IPO. Traveloka is said to have held discussions with some blank check companies, including newly formed companies such as Bridgetown Holdings, backed by Peter Thiel and Richard Li.

There is an even more gripping development. After months of speculation, discussion to merge Grab and Gojek — a match experiment conducted by SoftBank's Masayoshi Son — failed in January, and the two companies went on different paths. Gojek reportedly in advanced talks with Tokopedia for megamergers else before go public, temporary Grab it may launch its own IPO in the US this year.

Investors often expect portfolio companies to go public within a certain period of time, so that they can cash in on their shares. If the portfolio company does not do this, it may incur substantial contractual payments. For example, Grab akan owe Uber $2 billion if the Singapore-based company does not have publicly traded shares by March 2023. Meanwhile, a successful IPO can provide attractive returns for early investors — and set a meaningful precedent when they raise money for fund new. fund. It's a cycle that spawns bigger and more diversified investment funds that can cut bigger checks for startups.

These four companies — Grab, Gojek, Tokopedia, and Traveloka — will probably trade their shares in New York, where Forrest Li's Sea Group is leading the way for fast-growing tech companies in Southeast Asia. They have name recognition in their home region, but will they be able to convince investors in the US to hold on to their stake?

IPO competition

Founders Grab, Gojek, Tokopedia, and Traveloka have all stated their intention to achieve profitability since 2019. Pressure increased last year due to the pandemic — their investors expected results. go public provide investors with a natural way out; If all goes according to plan, four Southeast Asian tech companies will open a channel for cash from the US to flow into the coffers of venture capitalists.

“The public market has reflected an overwhelming desire to invest in Southeast Asia's technology scene, and one need not look beyond the Sea Group to see the extent of market interest in options to invest in technology companies in the region,” said Gabriel Li, a associate of Singapore law firm Withers KhattarWong.

As a technology company that spans e-commerce, video games and payments, Sea Group is Southeast Asia's golden child for the public market. Although the share price has been flat for more than two years, shareholders made a 400% gain on paper in 2020 alone.

That adds a market cap of $6 billion to Sea. This is several times more than the growth of the NYSE Composite Index in the same period, Gabriel said, and could encourage other tech companies to open up a new front line of competition, this time in the capital markets. “The race for listing is likely part of the perennial competition for market share. This is just one of the newest manifestations considering, by now, most would find the list to be very useful. And most will try to emulate the Sea Group experience,” said Gabriel.

Currently, there are few options for investors looking to put their money into the region's technology sector. To be one of the first firms to acquire the symbol ticker in New York is tantamount to taking advantage of existing opportunities. “The dearth of options will likely lead to better valuations,” Gabriel said, especially as Southeast Asian companies are on the radar of Chinese and American investors as viable options to diversify portfolios. “These investors are not only looking for higher investment growth opportunities in Southeast Asia, but also looking for newer technologies and solutions as growth areas that can enhance their existing portfolio.”

Meanwhile, Masana Takahashi, founder of Singapore-based corporate accounting and financial advisory firm Jidobox, believes that investor interest in companies depends on the fundamentals of the economy in which they operate.

“There are two main types of investors — retail and institutional. Retail investors may buy 'Indonesian market' than Gojek or Tokopedia,” said Masana. “They know Indonesia has a large population and a growing economy, which makes them interested in buying Indonesian technology stocks. Institutional investors build portfolios to hedge risk, so they will choose companies that play an important role in their country's economy. ”

Takahashi thinks that investing in Indonesia or Southeast Asian companies will be complementary for most investors. “Investors don't need a lot of unicorns in Southeast Asia. They only need to feel a portion of the region's economic growth. For example, I don't think Americans will invest in Grab as much as they invest in Apple, because they are not familiar with the company."

Like Gabriel Li, Masana agrees that the company that conducts the first IPO among the four will be valued at a higher valuation.

Can Southeast Asian tech companies reach the Chinese stock exchange?

Many institutional investors have enjoyed tremendous gains through the success of Chinese companies in the US stock market. However, the geopolitical stalemate between the US and China has left a question mark over company future China registered in New York. These tensions may even prevent new companies from listing on American stock exchanges, according to GlobalData, an analytics firm. In fact, a number of Chinese companies are considering secondary listings more local in Hong Kong.

That's why companies from Southeast Asia may be attractive to investors in the US. The region is recognized as the fourth largest economy in the world. It is home to a young population who are comfortable with new technological tools that are integrated into everyday life. Overall, Southeast Asia has 400 million people who move online, and that number will continue to increase in the years to come. This means the tremendous growth potential may be picked up by foreign investors, according to Gabriel. “The inflow of funds to Southeast Asia may continue to increase as it gains recognition as an emerging market.”

However, market fragmentation in Southeast Asia can pose challenges, and regional economic fundamentals are not as solid as China's, so it's unlikely that Southeast Asian tech companies see the same buzz in the stock market as some Chinese companies, Masana said. “China already has around 300 million upper-middle class people, so it has the purchasing power of developed countries. This is a significant difference from Southeast Asia," he said.

While the Southeast Asian tech giants may have promising long-term business plans, their share prices may remain stagnant or even fall after their debut, much like the Sea Group.

“If their finances are not attractive, they will not be able to attract investors. The majority of investors in the US stock market don't know Southeast Asia and you probably don't want to invest in assets you don't know about," Masana said. "Unless these tech giants can prove that they will grow rapidly like the Sea Group, no one will pay attention to a company that is losers in a foreign and distant country."

The US Stock Exchange may soon become home to the ticker symbols of more tech giants in Southeast Asia. Photo by Aditya Vyas from Unsplash

Persistent captain

One major investor has been a constant driver in the journey of taking Southeast Asian tech companies from private to public. SoftBank's Masayoshi Son attempts to regulate monopolies by combining Grab and Gojek, and he has reportedly given his blessing to potential to merge Gojek and Tokopedia.

Perhaps 2020 — with the pandemic, wild rides in the stock market, and significant shifts in the way we interact with each other — has given SoftBank a dose of chutzpah. It went from suffering heavy losses in early 2020 to reaping huge paper profits towards the end of the year. Many of the valuations of its portfolio companies have soared.

“Much of SoftBank's success in the last quarter boils down to its Vision — pun intended. Masayoshi Son's ability to invest aggressively in market-changing technology has paid off well, and I think their gains will continue as more SoftBank portfolio companies decide to go public," Gabriel said.

Ambitiously, SoftBank is reportedly preparing at least six more of its portfolio companies to go public This year. One of them is Tokopedia. Analysts project the IPO will give SoftBank more of a winning spin after last year's DoorDash and KE Holdings (Beike) offerings. In addition, Son's movements were difficult for outsiders to read.

“SoftBank has traditionally and regularly surprised entire markets and analysts with highly controversial and proven moves. Therefore, we know the fact that hoarding money is not in Softbank's DNA and this will be interesting news to follow," added Gabriel.

One of Softbank's blank check firms, SVF Investment Corp, raised $525 million in January. Last month, the Japanese conglomerate filed for two more SPACs, named SVF Investment Corp 2 and SVF Investment Corp 3, aiming to raise more than USD 632 million after over-allotting. Target to merge they are in technology-enabled sectors such as mobile communications technology, artificial intelligence, robotics and cloud technology, according to the report. That's enough to explain any tech company on the planet, but it would be fair to point to a company that has received a check from SoftBank's Vision Fund.

For now, it's unclear when Grab, Gojek, Tokopedia, and Traveloka will grab the ticker symbol — or even earlier. But one certainty is that go public meaning these companies will face scrutiny from regulators as well as the public, so they must demonstrate their value and maintain a profitable and sustainable business. Their IPO will be a major breakthrough for the Southeast Asian tech scene. The question is: After Sea Group, who will be this unicorn's new fortune?

-This article was first released by KrASIA. Re-released in Indonesian as part of the collaboration with DailySocial