So Grab raises US$750mil, is an IPO next?

• Dangerously close to threshold after which trade sale won’t make sense
• Anthony Tan highlights Indonesia’s US$15 bil market for ride-hailing

MALAYSIAN founded, Singapore based GRAB, has raised US$750 million in equity financing with long-term strategic partner SoftBank, leading an expanded, oversubscribed round, with participation from both new and existing investors.
 
While the official Grab release does not mention who the other investors are, Reuters reports that institutions from the United States and China also participated in the funding. Meanwhile, Bloomberg reports that China’s Didi Chuxing, an existing investor, also participated.
 
With Uber said to be very much in its sights and Grab’s home market of South-East Asia (SEA) predicted to be the battleground between the two, the current funding better positions Grab, which has been burning through its Series E round from Aug 2015, in an aggressive manner to secure a dominant position in SEA.
 
Indonesia, and the 30-million city of Jakarta especially, is a key market they plan to win with Grab’s co-founder and CEO, Anthony Tan (pic) making no bones about their interest. “We are particularly excited about the growth opportunity in Indonesia, where we see an almost US$15 billion market for ride-hailing services alone, as well as the potential to extend GrabPay’s (Grab’s cashless payment method) platform regionally. I am confident in our technology, data science and machine learning platforms, which have continued to scale to support our bold ambitions in the region,”
 
In Indonesia, Grab claims that GrabCar and GrabBike services grew 250x in one year as of the end of June 2016. At the SEA level, with up to 1.5 million daily bookings Grab offers private car, motorbike, taxi, and carpooling services across 6 countries and 31 cities in the region.
 
Masayoshi Son, Chairman and CEO of Softbank Group Corp, also talks up its leadership position in SEA.
 
“Grab is the clear winner in the SEA mobile space. Tan and his team have made impressive progress in building out SEA’s largest mobile internet company. We are committed to supporting local champions like Grab that have a vision for a next-generation internet ecosystem, and look forward to participating in their long-term success.”
 
Intriguing IPO scenarios
That long term success could come via an IPO route, speculates one venture capitalist. Noting the precise use of “equity financing”. “It could imply that they are issuing ordinary shares here and building up their core equity to prepare for an IPO,” says the VC who even thinks a dual listing could be on the cards with Grab having Didi as an investor.
 
Jamaludin Bujang, CEO of Malaysian Venture Capital Bhd (Mavcap) also believes the IPO route is a possible scenario telling DNA in a phone conversation, “I have recently heard that they are planning for an IPO.”
 
In its press release, Grab makes specific mention of how the latest funding increases its total capital position to over US$1 billion and how it has become the best capitalized technology startup and mobile internet company in SEA.
 
Meanwhile a regional VC based in Singapore tells DNA via email that the use of “equity financing” might be a signal to the world saying “we’re not borrowing, we’re issuing shares still”.
 
The VC does agree that Grab has used interesting language to describe its funding. “I very much doubt however that common shares would be used – existing liquidation preferences would be very hard to dissolve for common issuance to happen. Then again, it’s Softbank investing into a Softbank funded company, so who knows?”
 
As to the IPO scenario, he feels that the window globally will be heavily impacted by the US election and Federal Reserve decisions. Only post November would there be any clarity as to how to go about public listings.
 
Somewhat intriguingly, the VC also feels that by now “Grab is dangerously close to that threshold after which trade acquisitions don’t make sense and an IPO is the only way out for investors.”
 
One scenario here is to be very creative with swaps and ratchets to make Grab’s investors take on Didi’s shares (deferring Grab’s IPO to the time that Didi IPOs, and folding whatever issues Grab may have into a much bigger, more complex China story).
 
“That’s what I’d shoot for, anyway,” says the VC.
 
As of the time of publishing, Grab has not reverted to DNA’s question about the IPO possibility.
 
Whatever the next fund raising option taken, it’s clear that Grab will need all the firepower it can muster to compete against Uber, if the US company does indeed double down on SEA. Infact, Fortune, in reporting the Grab funding, went with the following headline: Uber's Biggest Rival in Southeast Asia Rounds Up Another US$750 million. Having cut its losses in China recently, Uber’s experience shows how costly it can be to compete in a large geographic market with a strong competitor as even a US$1 billion war chest, as reported by the Financial Times last year, just for its China expansion was not enough to beat incumbent Didi Chuxing.  
 
Indonesia itself is set to be a particularly intense battleground with home grown champion, Go-Jek, recently raising US$550 million and planning to focus on deepening its dominance in the country as not just a ride hailing service but on-demand services as well. That’s going to be a no holds barred battle right there.
 
The hard driving Tan probably expects nothing less.