Flash Report /
Singapore

Three issues with the Grab SPAC deal the market is ignoring

  • The deal would give founder Anthony Tan a vastly disproportionate voting share (30 times more than his ownership stake)

  • Grab's cash burn may worsen – it is at a stage of its development where the company is highly cashflow negative

  • There may be misgivings about the valuation: at 10x P/S, Grab is at the top-end of the valuation range of 'Baby Amazons'

Three issues with the Grab SPAC deal the market is ignoring
Nirgunan Tiruchelvam
Nirgunan Tiruchelvam

Head of Consumers Equity Research

Tellimer Research
16 April 2021
Published by

The build-up to the Grab SPAC deal with Altimeter has been frenetic and the market seems to be blind to a certain reality once the announcement was made. The biggest SPAC in history and the largest ASEAN listing has some cause for concern:

1. The terms of the SPAC deal would give Grab's founder Anthony Tan a vastly disproportionate voting share

The Grab SPAC deal, as is typical in this asset class, have a dual share structure.

Tan would hold 2.2% of the shares in the company by virtue of his 163mn Class B Shares. This includes 25.6mn shares from co-founder Tan Hooi Ling and 14.4mn shares from Grab President Ming Ma – these shares are beneficially owned by Tan. Each Class B share equals 45 votes, while each Class A share is equal to one vote. Accordingly, Tan would control 60% of the voting shares after the merger with Altimeter.

Tech founders in companies such as Google, Facebook and Uber have defended dual-class shares as a means for shareholder value creation. However, the mismatch between ownership and voting in the Grab SPAC deal would be of a much higher magnitude.

Founder's shares

2. Grab's cash burn may worsen

Grab's net losses have widened by 30% in FY 20. There are accumulated losses of US$4.2bn since 2018.

We note that Grab will receive US$4bn in new funding as part of the deal. But, even with this funding, it scores close to the bottom of our Cash Sustainability Index (CSI). Grab is at a stage of its development where it is highly cashflow negative.

Financial Performance (US$ bn)

3. There may be misgivings about the valuation

Altimeter has dropped 10% since the deal was announced.

Altimeter Growth Corp share prices in Mar-21

At US$40bn, Grab is valued at 2.5 times the valuation in last year's funding round. And at 10x P/S, Grab is at the top-end of the valuation range of the so-called 'Baby Amazons' (EM e-commerce stars).

Covid-19 has boosted the prospects for Grab's food delivery and digital payments business. However, the onus is on the promoters to justify the premium.

E-commerce Comparables