Online payment company MOL Global raised $169 million in a Nasdaq initial public offering after pricing its shares at the low end of the range, becoming the first Malaysian company to list in the US.
Market weakness dampened sentiment ahead of the company’s listing and led to a revision of the initial terms, bankers close to the deal tell FinanceAsia.
After hitting a 2014 high of 4,598 on September 2, the Nasdaq has since retreated 5% as of October 9. The New York Stock Exchange and S&P 500 have also experienced similar declines in the same time period, dropping 5% and 3%, respectively.
Some attribute recent US stock-market declines to the IMF cutting its 2015 global growth forecast to 3.8% from 4%. Other global events, such as the Ebola outbreak and last week’s student-led protests in Hong Kong, have also likely weighed on equities.
IPO details
MOL Global, which is majority owned by Malaysian billionaire Vincent Tan, sold 13.5 million American Depository Receipts at $12.50 per share, the bottom of the initial $12.50 to $14.50 price range.
The issuer originally aimed to sell up to 19.4 million shares with a primary/secondary split of 38%/62% and had hoped to raise more than $260 million. But rocky market conditions and poor performances by a number of recently listed IPOs soured sentiment. As a result, all of the demand for MOL Global came in at the bottom of the range.
Tan unsurprisingly wanted top dollar for his stake and felt the shares should have been priced higher. Rather than stick to the initial terms and sell 12.5 million shares at $12.50 each, Tan offloaded half that, or 6 million shares. He originally wanted to sell down his stake from 69.3% to 44.7%, but remains a majority owner of the company, bankers close to the deal said.
The revised deal brought the total deal size from 19.4 million shares to 13.5 million shares, representing 32% of the enlarged share capital. The number of primary shares remained the same at 7.5 million, sources said, and as such MOL Global’s valuation of 34.5 times 2015 earnings has not changed.
“Given market weakness and US company underperformance, the secondary seller, Tan, decided to sell less stock,” one banker told FinanceAsia. “General markets are down. And in the past few sessions, most [US-listed] companies have dropped a few percentage points.”
Albeit poor market conditions, the deal was still multiple times covered with more than 100 lines participating in the book, which was made up of “a healthy mix” of Asian and US long-only institutional investors and hedge funds, bankers said.
MOL Global is the first Asian company to list in the US after Alibaba’s record-breaking floatation on September 18, an IPO that netted Jack Ma’s company some $25 billion. The e-commerce giant managed to avoid most of the recent turbulence. After rising 38% on its market debut, Alibaba is up 30% year-to-date.
Proceeds
MOL Global has ambitious plans to secure customers’ mobile wallets across Southeast Asia, goals that sound similar to Ma’s own aspirations for Alibaba’s Alipay, the Chinese e-commerce giant’s version of Paypal.
MOL Global, also known as Money Online, is already the largest online payment system in Southeast Asia by volume, and boasts physical distribution networks in more than 970,000 locations in 13 countries.
Post-flotation, it aims to launch MOLWallet, an online and mobile payment processing and money transfer system in Malaysia, by year-end.
It also plans to expand existing products, such as MOLPay, an integrated payments platform for online merchants which offers cash, online banking and credit card payment processing options for their customers.
MOLPay currently operates in Malaysia and Vietnam but the company aims to start the platform in Indonesia by the end of the year, according to the company’s prospectus on the Securities and Exchange Commission website.
Part of the company’s appeal goes beyond its online banking and credit card payment services. It has agreements with various distribution partners, including 7-Eleven Malaysia, another company controlled by Tan.
7-Eleven Malaysia, which raised $227 million in an IPO earlier this year, has a dominant presence in Malaysia, with an 82% share of the convenience retail store market, and 1,583 stores throughout the Peninsular and East Malaysia. MOL Global’s partnership with the convenience store brand could prove very lucrative.
Its main product is MOLPoints, a micropayment system that sells payment credits that can be used by consumers to purchase online game credits and other digital content, including Facebook Game Cards.
Outlook
MOL Global is operating in a sector with a lot of potential. The adoption of internet usage in emerging countries is happening at an unprecedented rate. As income levels rise, a larger section of the population is going online. Cheaper smartphones, ongoing fixed broadband rollouts, expanding Wi-Fi coverage and falling PC and tablet prices are all contributing to this growth.
The Southeast Asia, Turkey and Brazil e-commerce sector was valued at $27.4 billion in 2013 and is forecast to grow at a compound annual growth rate (CAGR) of 24.5% to $81.8 billion by 2018. This is nearly three times its current size and roughly the same size as the total Chinese e-commerce market in 2011, according to Frost & Sullivan.
This will not happen overnight. MOL Global notes in its prospectus that credit card penetration remains extremely low in its key markets. Only 16.7% of the population in Malaysia had a credit card as of year-end 2013, while credit card penetration was less than 10% in other Southeast Asian countries.
Other risks include increasing competition from banks, telecommunications operators, game operators, digital content retailers, global and local micropayment providers.
Earnings
Risks aside, it’s clear the company is operating in a very lucrative sector, as can be seen from its earnings. Both revenues and profits have increased steadily over the past three years.
Revenues totalled M$171.5 million ($52.4 million) in 2013, up 79% from M$95.6 million in 2012 and 171% from M$63.2 million in 2011.
Profits also rose during this period, totalling M$18.7 million in 2013, compared with M$6 million in 2012 and M$8.2 million in 2011.
It was a similar story for the first half of the year, with MOL Global reporting revenue of M$105.1 million in the first six months of 2014 compared with M$78.7 million in the same prior-year period.
Profits meanwhile hit M$15.5 million in the first half of the year, a 61% rise from M$9.6 million in 2013.
Citi, Deutsche Bank and UBS led the deal.
