Southeast Asia’s most valuable startup Grab has postponed its S$54 billion (US$40 billion) initial public offering (IPO) via a special purpose acquisition company (SPAC) merger till the fourth quarter of this year.
The company had previously said it aimed to close the deal by July this year, but there are delays over details required by the US Securities and Exchange Commission (SEC). Grab is finishing its financial audit for 2018 till 2020, and is working with the SEC for pre-clearance for accounting policies and financial disclosures.
Grab’s valuation is the largest so far in the SPAC space, and the ride-hailing giant could raise about S$6 billion (US$4.5 billion) in cash proceeds.
Grab Holdings chief executive Anthony Tan had said he is confident the merger with the US blank cheque company will be completed by year-end.
Some observers and investors have shown concern on the delay, as the SPAC craze may cool off in a matter of months.
However, experts say investors’ appetite won’t dampen and SPAC deals are set to continue.
After the completion of Grab’s SPAC deal, the combined entity’s stock will trade on the Nasdaq under the ticker GRAB.
SPAC cooldown paves the way for more serious investors
Michael Lints, partner at Golden Gate Ventures commented: “The SPAC craze has definitely slowed down, but hasn’t fully gone away … With the craze slowing down, you’ll find more long-term and strategic investors who are not looking for a quick win. This will play in (Grab) deal’s favour.”
A SPAC is a shell company that raises funds to acquire a private company with the purpose of taking it public, allowing such targets to sidestep a traditional IPO.
Recently, the performance of SPACs has faltered in the market, putting extra pressure on blank-check firms trying to woo startups that are becoming wary of the IPO process.
US regulators have been warning investors for months about the potential risks around SPACs. This year, they spooked dealmakers by floating the potential of different accounting treatment for one aspect of SPAC deals, a move that has forced many companies to review their results.
The stepped-up scrutiny comes amid a global IPO boom. Companies raised about S$175 billion (US$130 billion) in the US this year as of June, of which S$119 billion (US$88 billion) were SPAC deals, according to Refinitiv data.
“SPACs as a vehicle is clearly here to stay. Long-term investors tend to spend more time on understanding the risks, but also see the value in companies such as Grab,” Michael said.
Grab’s SPAC delay will be to the tech firm’s advantage
Rumours around Grab’s SPAC IPO had been downplayed by the market recently, said Ashley Huo analyst at DailyFX.
However, she reckoned that the sentiment of the stock would stay pretty much the same as in the first quarter of 2021, when they reached a record high proceed within just a quarter.
That’s because of the food delivery segment, which grew 49 per cent in the first quarter and helped offset a decline in ride-hailing. The financial services segment expanded 17 per cent in the same period. The company did not provide revenue or profit numbers.
Experts say the delay will provide the tech firm more time to work on showing results for this year too, to gain more investors’ trust.
“Their effort in making a decent growth in this most challenging period may be a convincing fact for its appeal in the foreseeable future … Grab made a gross merchandise value of S$4.8 billion (US$3.6 billion) in the first quarter of this year, which made a 5.2 per cent growth compared to the first quarter a year ago,” Ashley said.
SEA listings new to US market, show growth potential
Investors will look at this deal from an opportunity perspective, said Michael, reasoning that Southeast Asian tech companies are relatively new to US public markets.
“Other than Sea Group, there hasn’t been any large listings in the US from Southeast Asia,” Michael added.
Through Grab, public investors can understand how big the opportunity is in the region and how much more the tech firm can grow across existing and new product lines, he said.
SPACs typically have 24 months to find a target. If the company fails to identify one, it liquidates and investors get their money back.
The investors who buy into and fund SPACs when they first go public are typically institutions such as hedge funds.
Despite a gloomy global economic outlook and a general slowdown in 2020, the Asian Development Bank and the International Monetary Fund have both projected a rebound for Southeast Asia’s economies for this year.
According to platform InfoComm Southeast Asia, the region is a bright spot which will continue to shine for businesses seeking new markets and growth opportunities in challenging times.
That’s because of the region’s fast-growing middle class, which doubled the size in 2020 compared to 2012.
Against a backdrop of growing consumption, Covid-19 has also accelerated interest in digitisation and technology in Southeast Asia, as well as a demand for digital innovations and applications.
Economic recovery a “wildcard” in influencing investor appetite
The US Federal Reserve (Fed) raised its expectations for inflation this year and said it will hike interest rates.
This has impacted stock markets because borrowing may become expensive for individuals and businesses. Higher interest rates also tend to negatively affect earnings and stock prices for most sectors.
Ashley thinks that the tightened interest rates may not impact investor sentiment on the Grab SPAC deal.
“The Fed is expected to start taper in 2022. Unless the Fed does any further steps to accelerate the progress, it may not have a significant impact on the Grab SPAC deal,” she said.
However, Michael has a more cautious view.
“Interest hikes always impact public markets and public investor sentiments. It’s difficult to disconnect a large listing from public investor sentiment,” he said.
“How it will impact is difficult to say because we are still a few months removed from the launch at the end of this year. Listings might reconsider valuation if the market is more cautious and conservative due to rising interest rates.”
Featured Image Credit: Tech Crunch