The pipeline of Initial Public Offerings may have been tested by the Chinese Government’s intervention in the AliPay IPO in November last year, but the first quarter of this year has provided opportunity for other contenders. Bloomberg estimates that almost U$50bn of fresh capital has been raised by companies on Asian exchanges, an increase of over 150% compared to the first quarter of 2020.
Chinese technology businesses have been prominent in the raising of funds in recent years, and they continue to be an attraction, with TikTok rival, Kuaishou Technology, issuing U$6.2bn of equity to be listed on HK and the largest global IPO this year.
Demand for HK listings will continue as US-listed Chinese companies adopt this route in response to the threat of a de-listing in the US should American regulators be prevented from reviewing their financial audits. In addition to these “returnees”, we believe there are several new businesses that are attracting funding which will ultimately pave the way to the public market.
Those familiar with the Aubrey investment process, will recall the growth delivered by several of our Chinese investments over the last 10 years. Meituan has been successful in their business expansion from the initial food delivery operation to now including hotel and travel booking, car hailing and other lifestyle services. Our investment experience has taught us that consumer behaviour does tend to replicate in different countries and business development can be modelled on more advanced economies.
At an International summit held in January this year, the Indian Prime Minister Narendra Modi highlighted the fact there were now over 30 Indian companies that qualified for the status of a ‘Unicorn’. These are companies which are privately owned but have secured funding to the value of over U$1bn. This may seem a modest valuation compared to many Indian listed companies, but those which opt for an IPO will offer investors the opportunity to back younger and dynamic enterprises in growth areas of the economy.
The opportunity in India has attracted international capital in recent years, with the WalMart acquisition of Flipkart for U$16bn in 2018 being a notable example. Flipkart now includes the wholesale digital marketing business, which aims to address the small and medium enterprise (SME) segment of the economy and has accumulated over 300mn users. Recent market commentary has suggested an IPO before year end, and this would provide an opportunity to assess a business with extensive reach to the nation’s consumers and Kirana operators.
India clearly has scope to catch up with the economic, industrial, and infrastructure development that China has delivered over that timeframe and the food delivery phenomenon is a now a global industry, where smartphone technology has narrowed the development and adoption gap.
The Aubrey GEM portfolio currently holds an investment in Info Edge, which operates the leading recruitment business in India but has also nurtured various investments including that of Zomato, one of the leading food delivery operators in the country. The most recent equity raising from Zomato secured an additional U$250mn for operational expansion and values the business at U$5.4bn, ahead of the expected IPO later this year with Info Edge owning 18.4%, post the recent capital raise.
Image source: Zomato blog
The escalation of the border dispute between India and China last year has provided an unexpected opportunity for Indian technology developers. The Government issued an effective ban on 59 Chinese apps in January this year and this has provided the catalyst for an alternative domestic app. The previously popular, and Tencent owned, WeChat user base is being targeted by new entrants such as ShareChat which was launched five years ago and recently raised U$500m to value the business at over U$2bn. The Co offers the social network app in 15 Indian languages and targets the smaller towns and cities in India where the majority of the population reside. The funds will support the expansion of the short video app Moj, which was aimed at previous users of TikTok although there have been several new entrants into this arena. The collection of international private equity investors makes this another likely contender for the IPO process.
Capital attraction in Asia has not been the preserve of China and India, with notable transactions in Indonesia also gaining investor attention. The 270M population is accelerating their eCommerce adoption, and with the country internet penetration at less than 60% and an average age of 31 the shopper with a smartphone will become the norm. We have written about this on a couple of occasions last year following an investment we made in SEA Limited in January 2019 (Going to the sea and On the Horizon, Over the Sea).
Image source: Gojek app
Singapore-based Grab and Indonesian champion Gojek are two dominant players in the market and competition has been fierce. They both offer an array of services addressing food delivery, shopping, ride hailing, and financial services. The current speculation suggests Grab is considering a US listing via a special purpose acquisition company (SPAC), but Gojek will merge with Tokopedia which operates an eCommerce platform for buyers and merchants and list the new combined business in Jakarta.
Both business play to our focus on the consumer and would be a welcome addition to our universe. Aubrey had an encouraging discussion with Gojek management recently and an interesting prospect for development is the financial services business which could become larger than the rest of the group operations. Does this remind you of another regional eCommerce giant?
The emergence of these businesses serves to highlight that whilst countries may operate at different stages of economic development, an app on a smartphone can address the consumer opportunity quickly, efficiently, and change behaviours forever. Tencent and Alibaba rightly garner praise for their business development in China and astute investments in the wider Asian region, but the domestic champions of these countries are raising their game and stepping into the IPO ring.
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