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IPO dreams for Southeast Asia’s startups

An often-discussed topic in start-up media, Monday morning meetings at investment banks (especially when deal flow is dry), and investment committee discussions at venture capital firms are: can the start-ups they are looking at actually look at IPO as a viable path to exit?

In Southeast Asia in particular, there has been a view that IPO remains mostly a pipe dream for the majority of start-ups in regions. 

There is basis of the cynicism.  Since the SEA and Razer IPOs in 2017, there has not been a notable IPO to date of a Southeast Asian start-several questions are asked about whether trade sales will continue to be the only exit option for the region’s unicorns.

However, there are several factors now emerging that could potentially point towards public listings as a viable exit for Southeast Asia’s start-ups.

Success of SEA Ltd 

It’s no secret that public markets are witnessing a historic run, with the likes of Tesla, Shopify and others garnering significant attention from institutional and retail investors. 

However, the best performing stock has been a Southeast Asian one – Singapore-headquartered gaming firm SEA Ltd (which also includes e-Commerce giant Shopee) has seen it’s share price soar more than 1960% since listing. 

The stock listed on the NYSE in 2017, and has received staggering returns, despite not making a cent to date in profits. This has led to the likes of Tokopedia, Grab, and Traveloka all indicating potential IPOs in 2021. 

SPAC fever

Much like the US markets (over 200 SPACs raised around US$70 billion in 2020), the SPAC boom has now spread to Southeast Asia 

At least five prominent names already set up to target Southeast unicorns. These include two from Paypal and Palantir co-founder Peter Thiel. 

Moreover, local Southeast Asian exchanges have also jumped on the SPAC bandwagon, in order to attract these unicorns to list on their exchanges and not NYSE/NASDAQ. 

The Hong Kong Stock Exchange (HKEX), which has traditionally held higher due diligence standards for IPOs and doesn’t yet support SPAC listings, is now considering amending regulations to allow blank check companies to list.   

Singapore’s stock exchange (SGX) too, is now accelerating plans to become the first major bourse in Asia to become a SPAC-hub.  These moves from both the major exchanges of the region bode well for bolstering the attractiveness of IPOs as an exit for IPOs. 

Investor push

More than anything, many of the start-ups in questions are now being told by their investors to consider IPOs, given (very) favourable market conditions. 

The ideas of IPO are being given hot on the heels of rumoured stalled merger talks between these start-ups (covered in our previous edition). Softbank, who counts both Tokopedia and Grab in its portfolio, recently filed to raise a US$600 million SPAC as well.  

Interestingly, for Grab in particular, there’s extra incentive – under the terms of its deal with Uber (who’s Southeast Asian operations it acquired back in 2018), the latter has the right to force Grab to buy-back its shares to the tune of at least US$2 billion if Grab cannot list by March 2023. 

While it remains to be seen whether any of these go on to become successfully listed companies, chatter about IPOs has been hotter in recent times for Southeast Asia’s unicorns.