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Are global listings the next big step forward for Southeast Asia's tech companies?

Srividya Gopal
Srividya Gopal1/22/2021 06:31 AM GMT+08  • 6 min read
Are global listings the next big step forward for Southeast Asia's tech companies?
Some of the Southeast Asia unicorns are also said to be considering dual listings in their local markets and the US market.
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The technology industry in Southeast Asia is relatively young. Not only is it a late starter compared to Silicon Valley, it is also lagging behind Asian tech giants such as China and India.

However, in the last few years, the industry has seen a significant uptick in volume of business, user base and level of investments, driven by considerable increase in internet penetration and adoption.

The Covid-19 pandemic has further led to greater usage of internet and technology, preventing the industry from a decline most others have faced.

Having said that, this industry is currently at a crossroad, faced with imminent challenges including continued losses, significant additional capital requirement, the need for exit options or liquidity to investors, and a much-needed consolidation drive.

Many of the Southeast Asia companies and their investors are hence keenly exploring global listings through several formats.

Growth in Southeast Asian tech sector

Southeast Asia’s internet economy is expected to reach US$309 billion ($409 billion) by 2025, implying a CAGR of 24% from US$105 billion in 2020.

During 2020, e-commerce, online media and food delivery sectors witnessed accelerated growth due to the pandemic, offsetting contractions in the online travel and transport sectors.

Indonesia is Southeast Asia’s largest internet economy and is expected to reach US$124 billion by 2025 or 40% of Southeast Asia’s internet economy.

From a transaction and investment perspective, globally, while most sectors have shown a decline in deal values between 2019 and 2020, the technology sector has shown a 22.5% increase during the same period.

In Southeast Asia, the technology sector has seen PE/VC investments of US$5.7 billion in 2020, which makes up for 66% share of the total PE/VC investments here. The sector’s share of the PE/ VC pie is higher at 80% for Indonesia. Southeast Asia is home to 11 unicorns, of which five are based in Indonesia and three in Singapore.

The highest valued and most funded unicorn is Grab, followed by Go-Jek and Tokopedia. In the past, several Southeast Asia unicorns such as Sea (formerly Garena), Razer, Lazada and Bigo have successfully listed or consolidated with larger players in the global market.

In addition, there are several emerging Southeast Asia unicorns such as Carousell, Circles.Life, Iflix, PropertyGuru and Zilingo. In recent years, several billions of US dollars have been invested into these companies by VC and PE funds, pension funds, Asian corporations as well as US tech giants.

Way forward in transaction and capital raising

After seeing tremendous growth and with the expectation of losses to come owing to significant competition and the inability to reset pricing models, the Southeast Asia tech industry is currently at a cusp, where continued new investments are required, while at the same time the existing investors are looking for exit options and liquidity.

As we have seen from the Uber-Grab transaction, consolidation in the sector is unavoidable in order to improve profitability and leverage on scale. We are seeing a few trends that have started taking shape or expected to take shape in the near future.

Some of the tech companies plan to go for a global IPO. This includes direct listings, reverse takeover offers (RTO) or regular listings.

The year 2020 saw several large tech listings in the US markets such as Airbnb, Snowflake, DoorDash and Palantir. They listed at high valuations and many of their share prices show a significant increase after IPO. The Stock Exchange of Hong Kong, which traditionally only had a marginal portion of its market cap from New Economy stocks, has witnessed sizeable tech IPOs in the last few years.

The Shanghai Stock Exchange STAR market, which was launched in 2019 to permit listings of loss-making technology companies and pre-revenue biotech companies, was among the top global IPO destinations in 2020.

While investors in stock markets in the West have more experience in investing in loss-making tech companies, Asian markets have traditionally focussed on profits and dividends rather than growth. We are seeing this view slowly change in Asian markets as more tech unicorns and other early-stage companies list on the public markets.

Using a SPAC or blank cheque company that has no commercial operations to acquire an existing company and raise capital through an IPO is an option several Southeast Asia companies are considering.

SPAC structures have existed for several years but gained attention recently. During 2020, 259 SPACs were raised, which is about four times the number raised in 2019, with over US$81.1 billion chasing acquisitions. Southeast Asia has jumped onto the SPAC bandwagon during 2020 and 2021.

Notable SPACs include Aspirational Consumer Lifestyle Corp, which raised US$225 million on the NYSE in September 2020; Bridgetown Holdings, which raised US$550 million on Nasdaq in October 2020 to invest in New Economy companies in Southeast Asia (Bridgetown 2 Holdings is planning to raise another US$200 million); Singapore-based Tiga Acquisition, which raised US$240 million on the NYSE in November 2020; and Vickers Vantage filing for a US$120 million offering at Nasdaq.

Some of the Southeast Asia unicorns are also said to be considering dual listings in their local markets and the US market through a SPAC.

While there have been negative connotations in the past about blank cheque companies due to failed attempts, unsuccessful listings or lack of transparency, Southeast Asia investors are encouraged to relook at this structure with additional measures in place, after the mega success it has seen in the global markets in 2020.

There have been talks about mergers of some Southeast Asia unicorns. In the past, we have seen several tech companies successfully being acquired by or merging with Asian and global tech giants. In order to take advantage of the scale, improve pricing and reduce competition, consolidation is a much needed strategy in the industry today.

However, consolidation could be a more challenging approach for larger tech companies as that would require tougher negotiations, possible downsizing and more regulatory approvals. In the near future, we can expect to see one or more of the above trends catching up with the Southeast Asian tech sector. There is no clear demarcation between these trends or strategies, and we can expect further blurring of lines in this space.

For example, the merger of two unicorns could be combined with a SPAC listing or IPO. A SPAC listing, on its own, has elements of IPO, VC investment and M&A, all rolled into one. In addition, we cannot rule out further PE/VC investments into this sector or secondary transactions between investors.

Overall, we do expect to see significant action in this industry that could possibly lead to notable structural changes over the next few years.

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