Singapore-based Grab Holdings revealed plans to issue US$1.25 billion (S$1.61 billion) in convertible bonds maturing in 2030.

The move aims to strengthen its financial position for potential acquisitions, stirring speculation about a possible takeover of GoTo Group, the parent company of Gojek.

Despite Grab’s clear statement that no discussions or agreements with GoTo are underway, investors reacted positively, pushing GoTo shares up by 6.6% in Jakarta.

Market Reactions and Strategic Implications for Southeast Asia’s Ride-Hailing Giants

The announcement triggered optimism around the merger of two of Southeast Asia’s largest ride-hailing and delivery companies.

Analyst Nirgunan Tiruchelvam from Aletheia Capital noted, “There is a growing likelihood of a Grab-GoTo deal,” highlighting Grab’s bond issuance as a strategic preparation.

The bond’s terms include a low coupon rate between 0% to 0.5%, with a conversion premium around 35% to 40% over the stock’s closing price, suggesting investor interest in the deal’s long-term upside.

Financial and Political Considerations Surrounding a Potential Grab-GoTo Merger

While the bond sale adds to Grab’s war chest, some market experts remain cautious.

Fund manager Mohit Mirpuri of SGMC Capital questioned the rationale without a clear acquisition plan, stating, “Unless there’s a strategic acquisition in play, it’s hard to justify adding to the cost of capital”.

The prospect of a Grab acquisition of GoTo has also raised concerns among Indonesian officials about potential job losses, market dominance, and price increases in a fragile economy.

Indonesia’s sovereign wealth fund, Danantara, is reportedly considering involvement to ease government apprehensions.

Competitive Landscape and Growth Prospects for Grab and GoTo in Southeast Asia

Grab, dominant in Singapore, Malaysia, and Thailand, has battled GoTo fiercely for nearly ten years.

GoTo, after scaling back in some markets, remains a strong player in Indonesia, the region’s largest market with over 275 million people.

A Grab acquisition would significantly enhance its foothold in Indonesia.

Despite rivalry, both firms have seen demand rise, with Grab reporting a 19% increase in on-demand transactions, including food delivery, between April and May year-over-year.

Grab’s Capital Allocation Strategy and Stock Market Performance

Grab emphasized a disciplined investment approach, stating it will “maintain a high hurdle rate” and be “highly selective” with capital deployment.

The convertible bond sale is the largest Asian dollar-denominated convertible bond deal since Ping An’s US$3.5 billion issue in 2024 and the biggest by a non-Chinese company since SK Hynix’s US$1.7 billion deal in 2023.

Grab shares dipped 3.9% to US$4.98 on June 9, despite a 41% rise over the past year driven by improved profitability.

However, the stock remains over 50% below its late 2021 listing price in New York.

PHOTO: REUTERS

This article was created with AI assistance.