Didi and SoftBank pour $2b into Grab

Underlining Southeast Asia's draw as a red-hot investment destination, the Chinese and Japanese tech giants are providing the bulk of the ride-hailing unicorn's newest fundraising.

Grab, the Singapore-headquartered on-demand ride services provider, has received a $2 billion injection from regional tech giants Didi Chuxing and Softbank Group, underlining Southeast Asia's growing draw for investors as companies and private equity funds scout around for better returns.

The landmark investment in Grab by the Chinese ride-hailing giant and Japanese conglomerate was announced on Monday and is part of a $2.5 billion record round of financing.

“The next growth area is Southeast Asia,” said Chua Kee Lock, group president and chief executive of Vertex Ventures, a Grab backer and Singapore’s largest venture capital fund.

"A lot of big companies like Alibaba and Tencent are now looking for growth outside China," Chua told FinanceAsia. "The fact Didi and Softbank are putting so much money into a company here assures people this is a viable market, rather than a temporary phenomenon.”

Grab is seeking the new funds to help fend off competition from deep-pocketed global player Uber and smaller local rival Go-Jek and to further develop its mobile payment services. 

The tech unicorn did not divulge its latest valuation or list the other participants in the fundraising, although Alibaba Group was earlier reported to be mulling an investment.

Grab was valued at $3 billion after its previous round of funding in September 2016, when it raised $750 million, although Crunchbase records Grab’s pre-money valuation in its latest round at $4 billion.

“Between $5 billion and $6 billion would be a good guess” for the post-money valuation, Vertex's Chua said. A unit of the Singapore government's investment fund Temasek, Vertex was Grab's first backer and instrumental to the Malaysia-born firm’s decision to relocate to Singapore.

The additional capital raised will be used by Grab to step up its efforts to penetrate Southeast Asia’s $13 billion ride-hailing market and to transform it into a consumer tech player that also offers loans, electronic remittance, and money-market funds, following its launch of payment platform GrabPay.

Grabbing growth

The unprecedented size of the financing underscores the opportunities in Southeast Asia that big companies have identified and are hungry to grab.

The region has a 650 million population base and a growing middle class, which research agency Nielsen has estimated will reach 400 million people by 2020.

Meanwhile, the region's internet economy, currently the fastest-growing in the world, could be worth $200-plus billion annually by 2025, according to a report by Temasek and Google. The online ride segment alone could grow at a compound annual growth rate of 18% to hit $13 billion by 2025, according to this report. 

That is what Grab and its investors are betting on, underpinned by the example of Vertex, which has achieved “around 10 times total value" of its investment into Grab, Chua said.

Founded in 2012 as GrabTaxi, or MyTeksi in Malaysia, it has developed into a regional on-demand transportation platform, with a 95% share of the third-party taxi and a 71% share of the private vehicle hailing markets that it operates in.

Besides expanding its ride hailing business, Grab said it also planned to use the new funding to enhance its payment services. "With their [Didi and Softbank] support, Grab will achieve an unassailable market lead in ridesharing, and build on this to make GrabPay the payment solution of choice for Southeast Asia," Anthony Tan, group CEO and co-founder of Grab, said in a statement.

Tan, who is more inspired by the likes of Tencent than by Uber, hopes its customers will eventually use GrabPay -- which people currently use to pay for Grab rides - to buy all sorts of everyday items.

Grab started operating its in-App digital payment system in January 2016, mostly for people who already had credit/debit cards to pay for the rides. And in November GrabPay was updated to a digital wallet that its riders can top up using credits.

The biggest focus now for the cashless play is Southeast Asia's largest economy, Indonesia. In February, Grab announced a $700 million investment programme to build its mobile payment services in Indonesia, of which at least $100 million is dedicated to investments and acquisitions. In April, Grab acquired Kudo, an Indonesian payment start-up for $100 million in cash and stock, according to Crunchbase, to help target consumers with no credit card or bank account to use its services.

This fintech play is something Indonesian ride hailing player Go-Jek, now backed by Tencent, began offering before Grab.

¬ Haymarket Media Limited. All rights reserved.
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