TOKYO — This year has seen a boom of special purpose acquisition companies, or SPACs, as vehicles for listing quickly on the U.S. stock market, which is even hotter than last year. But the explosion is reverberating in unexpected ways on the other side of the globe, namely in Southeast Asian and Indian capital markets.
The announcement on April 13 by Grab Holdings — Southeast Asia’s highest-valued startup — seems to have ignited a chain reaction among a dozen or so regional unicorns. These private companies valued at $1 billion or more have become more interested in using SPACs as their preferred means of going public in the U.S. rather than the usual initial public offerings.
Grab, which runs a ride-hailing-to-mobile-payment “super app” in several Southeast Asian markets, said it is going public on the Nasdaq market “in the coming months” by merging with a listed SPAC called Altimeter Growth. The deal will include a private equity pipe investment in public equity financing of about $4 billion and a contingency share issuance of $500 million, ultimately valuing the Singapore company at as much as $39.6 billion.
If realized, Grab’s market cap will jump 180% from $1.4 billion, which was its valuation after the latest funding round last summer. This would put the startup on par with global giants such as DuPont de Nemours ($41 billion), Electronic Arts ($40.5 billion) and Prudential Financial ($39 billion), despite the fact that Grab has never been profitable and its business is currently limited to Southeast Asia.
Grab’s projected market value has cleared up some of the uncertainty hanging over other unicorns in Southeast Asia and India. While it is obvious that shareholders, including Sequoia Capital, Google and SoftBank Group, prefer their portfolio companies be listed on high-liquidity, dollar-denominated exchanges in New York, some skeptics had warned that the Asian startups would not draw much interest due to first-world investors’ unfamiliarity with them.
The reaction, however, has been the opposite. Investors are flocking from around the world to New York, hungry for new tech stocks and eager to gamble on high valuations based on growth expectations rather than cash flow. Grab’s market cap estimates prove that those investors treat Asian internet startups just like Silicon Valley startups in terms of valuation.
After Grab’s announcement, other Southeast Asian and Indian unicorns are lining up for mergers with SPACs to go public in the U.S. These include Grab’s archrival Gojek of Indonesia, which is reportedly preparing to merge with e-retailer Tokopedia before going public via the SPAC route. Others in line for a SPAC merger include travel site Traveloka of Indonesia, as well as Indian unicorns and “soonicorns” like food deliverers Zomato and Swiggy, online retailer Flipkart, and online grocery Grofers.
This is a scenario that the New York Stock Exchange and Nasdaq have been hoping for: offering ways to get high-flying Asian companies listed on their boards, including via SPACs.
Back on the other side of the world, however, governments and financial market regulators in Asia are suddenly facing competition from the most advanced equity market for their homegrown startups — a situation that has forced them to reflect on their own problems.
The lack of liquidity in Southeast Asian stock exchanges, except perhaps Singapore, is generally a mood killer for major global investors, many of which have stakes in Asian unicorns. The Indian stock market, on the other hand, has stringent rules that effectively ban the listing of loss-making startups and limit freedom to allocate new IPO shares.
Unless officials in those countries make their capital markets more attractive to outside investors, they will continue to lose their high-growth, large-cap startups to more competitive exchanges in the U.S. and elsewhere.
This is something to be avoided at all costs.
In a promising move, the Securities Exchange Board of India decided in late March to loosen some of its listing regulations. Meanwhile, the Singapore Exchange seems to be pushing to become a hub for secondary listings of startups in Southeast Asia and India while preparing its own version of SPAC listings. Grab is reportedly considering a secondary listing on the SGX once listed on the Nasdaq.
The development of capital markets is crucial for an emerging economy, and high-growth, large-cap stocks are indispensable to the process. The SPAC boom in New York is suddenly a wake-up call for market regulators in emerging Asian economies.