Tencent ‘mini-me’ debuts in US as battle for Southeast Asian e-commerce dominance intensifies

Southeast Asia’s largest tech start-up Sea’s NYSE debut adds to a busy year of US IPOs for Asian firms

PUBLISHED : Friday, 20 October, 2017, 2:13pm
UPDATED : Friday, 20 October, 2017, 7:51pm

Sea Ltd, Southeast Asia’s most valuable tech start-up, is set to debut on the New York Stock Exchange today. The latest in a growing number of Asian firms choosing to list in the US to tap a broader investor base and potentially better valuations, Sea will be a test case for other regional tech firms who have yet to go public.

The Singapore-based firm, backed by Chinese media and mobile giant Tencent Holdings, is seeking to raise US$884 million in its initial public offer, pricing each share at US$15.

“Most of the other [Southeast Asian] businesses are not in the market yet,” said Keith Pogson, senior partner financial services Asia-Pacific at Ernst & Young, pointing to online retailer Lazada and ride-hailing service Grab. “There isn’t really an alternative [Southeast Asian] new tech, new economy play of the same nature.”

“If you go to the US market, the story is an easy one: ‘We’re the SEA equivalent of Tencent, doesn’t that sound interesting and exciting? I for one think it is,” Pogson said.

Sea’s listing comes on the back of a busy year for Asian listings in the US.

Just this week, Qudian, the Chinese online micro credit provider, became one of the biggest US listings by a Chinese fintech firm after raising US$900 million, joining the tide of Chinese companies that have already listed in the country.

Founded in 2009 by entrepreneur Forrest Li under its original name Garena, Sea is best known for its online gaming business, which still makes up 90 per cent of its total revenue.

But the company has since expanded into e-commerce and digital payment as it seeks dominance in the fiercely competitive Southeast Asian e-commerce market.

Sea’s US IPO comes at a time when Chinese tech giants are expanding their presence in the Southeast Asian region, which is shaping up to be the next battleground for web retailing.

The region, home to 600 million people who still largely shop offline, has seen significant investments from Alibaba and Tencent over the past year.

Alibaba, owner of the South China Morning Post, has taken a controlling stake in Lazada as well as a US$1.1 billion investment in Tokopedia, one of Indonesia’s biggest online marketplaces.

“It’s no secret that global and regional investors have targeted Southeast Asia and are betting huge sums on its e-commerce future,” consultancy Bain & Co said in a recent report.

For Sea, its biggest challenge is making money in its e-commerce business because the online retail space is becoming crowded. Amazon’s recent push into Southeast Asia only highlights the region’s importance as the next e-commerce battlefield.

To grow its customer base, Sea offers free or heavily discounted shipping to shoppers across the region, which cuts into its profit.

“We have a history of net losses and we may not achieve profitability in the future,” Sea said in its IPO prospectus.

Despite the challenges, some analysts believe Sea is well placed moving forward.

“From its user acquisition drive, Shopee shows strong growth in the [region],” said Adrian Lee, research director at Gartner, referring to Sea’s e-commerce division.

“Couple that with the ability to seamlessly transact with their AirPay digital payment offering, they have the trappings of a successful digital commerce ecosystem play.”

Goldman Sachs, Morgan Stanley and Credit Suisse are acting as joint bookrunners for the proposed offering, which is expected to be priced between US$12.00 and US$14.00 per American Depositary Shares, or ADS, according the US Securities and Exchange Commission filing.