IPO dreams of Southeast Asian start-ups is becoming a reality
2021 has been a phenomenal year for Southeast Asia.
More than 25 start-ups across e-commerce, fintech and SaaS have achieved unicorn status in the region, equivalent to the past decade combined. We are now looking at a region with a 400 million strong internet user base and an ever expanding addressable market.
This has led to a number of investors making first time bets in the region in the past year. However, in order to continue this trajectory, startups need to deliver liquidity.
Drawing a VC analogy to Spiderman, the truth is that, with great capital comes the great responsibility to generate exits. So what does this imply for the region’s startups, and the ecosystem’s efforts to support this?
Strong precedents
Thankfully, initial concerns have evaporated due to the success of the first batch of unicorns. SEA continues to command a market capitalization of ~US$150-180 billion.
Grab listed at close to a US$40 billion valuation at IPO, while GoTo is expected to at the same range.
However, it is worth noting that despite their successful liquidity events, these start-ups chose to list in the US, the holy grail for tech. GoTo has announced plans for a dual listing in Jakarta to follow post its US listing but is not expected to be of the same size.
It is understandable why these startups decided to list overseas.
The NASDAQ and NYSE are considered the gold standard as they offer a market with immense amount of capital, access to global investors, higher liquidity, a greater number of industry peers, stable regulation, and better intellectual property rights.
Moreover, the start-ups that have treaded the local exchange path have not fared the best in the short span they have been public.
Most notable is Bukalapak, which was Indonesia’s largest-ever IPO with US$ 1.5 billion raised but has now seen its price tank ~60% since listing.
However, foreign listings, while good for the start-ups, naturally do not benefit local ecosystems to the same extent. One has to realise that exchanges themselves are businesses, competing with each other to attract the best companies to list there.
This has led to a number of Southeast Asian exchanges waking up and deciding to do something about this conundrum.
Go local or not
Almost all the major countries have taken steps to promote local listings.
Indonesia’s stock exchange (IDX) announced a dedicated technology section in 2019 to host IPOs by start-ups. It has also amended IPO rules by extending the time period to six years for companies to be profitable as compared to erstwhile two years.
It had relaxed rules that previously required a minimum of 100 billion rupiah ($7 million) in net tangible assets and at least one year of profit to be able to launch an IPO directly on the main board at the bourse.
Now companies can fulfill other qualifications in lieu of net tangible asset, such as by meeting a minimum operating revenue or total asset value, depending on their market capitalisation. These relaxations have been announced to enable listing of SEA decacorns like Go-To
Singapore and the SGX, have also taken a fair number of steps. It announced the launch of Anchor Fund, a new co-investment fund by the Singapore Government and Temasek, where high-growth enterprises can tap capital in their public fundraising efforts.
SPAC norms, dual listing norms across exchanges have also been relaxed across exchanges to promote listing on local bourses.
As a result of these initiatives, SEA exchanges have recorded robust capital market listing.
Data by Deloitte as of 15 November 2021 showed that companies in Southeast Asia raised a record of US$9.8 billion from 121 IPOs this year, out-performing the full calendar year 2020, with variety of IPOs ranging from Oil, tele-communications, retailers and finance companies.
Thailand emerged as top performer in Southeast Asia with largest total funds raised of US$4.2 billion in 2021 followed by Philippines with US$2.8 billion in proceeds, more than the past 4 years combined from just 6 IPOs
Just the beginning
Even though multiple steps have been taken to promote local listings, there is still a wide gap to bridge to reach the benefits offered via a US listing.
Moreover, sensing rising competition from domestic bourses, US stock exchanges have also specified that India and SEA are their key markets. A testament to it is the growth of SEA focussed SPACs which have raised US$ 101.3 billion in 2021, 22% higher than previous year.
Founders are concerned that one flop IPO on domestic bourses could have a domino effect and may impact the listing plans of other companies, as seen in other markets. This was evident when companies like Mobikwik had to re-assess listing timeframes after initial declines in the likes of PayTm.
Thus, this is just clearly the beginning in terms of the “where to list” question for these start-ups. However, the fact that we are now asking this question shows how far the ecosystem has come. Whether local or abroad, startups in the region have a home regardless.