Grab, the southeast Asian ride-hailing app-turned-fintech, is believed to be deep in talks to go public through a New York-listed special purpose acquisition company (Spac).
The deal is potentially the biggest of its kind so far – and bad news for Singapore Exchange (SGX).
Grab declined to comment on Monday about the rumours linking it to a Spac run by Altimeter Capital Management, a technology-focused investment firm based in Silicon Valley.
But it is understood that the deal would value Grab at around $40 billion and would involve the raising of around $3 billion through a private investment in public equity (Pipe) structure.
JPMorgan and Morgan Stanley are believed to be advising Grab on the deal and talks with investors are already thought to be in train. Those close to discussions say the numbers will start to firm up soon.
Going this way would grant Grab a New York listing without the onerous process of an IPO and all its attendant disclosure.
SGX fears confirmed
It would also confirm for SGX an outcome it has long feared.
SGX has suffered a dearth of listings for a decade. Thanks to a habit of the sovereign vehicle Temasek taking some of its organizations private, there have been times when SGX has ended a year with fewer listed companies than it started with.
On the listed equity side, the exchange’s great hope – now that almost all the obvious blue chips are already listed and most of the city’s skyline is already securitized into Reits – has been that its emerging trove of sharp and savvy tech firms would create the next source of listings.
There were always worries that this theory might not hold true.
Firstly, the availability of private capital has been so abundant that tech companies have felt no need to rush to listing.
Just two months ago, on January 14, Grab Financial Group, the financial services arm of the company, announced a $300 million Series A funding round led by South Korea’s Hanwha Asset Management.
Secondly, there was a long-standing recognition that when a company such as Grab got to be big enough to list, it might well ignore Singapore and go straight to Nasdaq.
Probably a few years ago, nobody thought much of the prospect of it taking a back-door route through a strange-sounding thing such as a Spac, but now that looks to be the bait that has tempted Grab away from its homegrown roots.
Singapore Inc has been good to Grab; the Monetary Authority of Singapore granted a joint venture between Grab and SingTel a digital licence in December.
But, really, what is in a Singapore listing for a company such as Grab? Liquidity is thin. US markets are obviously deeper and their valuation of tech stocks more attractive.
SGX has tried to get around this by offering dual listings, accepting that a tech company might want a primary listing in New York, but could do a secondary in Singapore, a strategy that has worked out quite well for Hong Kong. And that might still happen.
But it is by no means a given and, if it does happen, would more likely be out of loyalty and political expediency than for any dramatic expectations around liquidity or a diversified investor base.
Grab’s decision on the Spac route is not finalized. Internally, there are thought to be those who value the idea of the due diligence and discipline that comes with a full listing, and recognize that a Spac brings with it questions of governance, transparency and investor treatment.
But the momentum in these vehicles has become so unstoppable that it would no longer look such a bold or controversial move for Grab to attempt it.
More than $70 billion has been raised for Spacs year to date, according to Dealogic, which is more than through mainstream public equity listings.
But in terms of enterprise value, this would be by far the biggest anywhere in the world, larger than the United Wholesale Mortgage/Gores Holdings IV $16 billion combination announced in September.
Altimeter Capital has two Spacs, Altimeter Growth Corp and Altimeter Growth Corp 2, which raised $450 million and $400 million in two IPOs in October and January on Nasdaq.
For Grab to team up with Altimeter, the Singaporean company would need its main shareholders onside, including SoftBank and Uber. They are not thought to be likely to object, since they would gain liquidity and quantifiable valuation for an asset that appears to be at a sweet spot in its journey.
We are delighted to draw upon the expertise of top investors who know financial services and fintech well
Reuben Lai, Grab Financial Group
Euromoney’s interest in the Grab story has always been on the financial-services side, and Grab Financial Group’s senior managing director Reuben Lai has presented his business as being at a vital moment.
“We are at an inflection point in southeast Asia, as the pandemic has accelerated the need for digital financial services that help us grow and protect our incomes,” he said in January. “We are delighted to draw upon the expertise of top investors who know financial services and fintech well.”
And SGX? Well, it is not as if it didn’t see this coming. Fortunately, CEO Boon Chye Loh has long since set the exchange on a course of diversification in which equities are only a part of its earnings streams.
It managed a 12% increase in net profit for the half year to December 31 to S$239.8 million, with increased revenues in fixed income, currencies, commodities, data, connectivity and indices – and equities, as it happens.
Equities accounted for 67% of total revenue in those results, but the bigger growth is in the other streams, and this is where the SGX’s future as a profit-maker lies. That, and in being at the forefront of digital infrastructure, illustrated by its new joint venture with Temasek.
So, if Grab takes the Spac route, it is not a death knell for SGX, more a depressing confirmation of the inevitable. Meanwhile, Grab will officially have gone global.
