Four things Uber’s IPO filing reveals about Grab

Grab
FILE PHOTO: The helmet of a Grab bike rider is seen during rush hour traffic in Jakarta, Indonesia, July 18, 2016. REUTERS/Iqro Rinaldi

Global ride-hailing Uber major, which exited Southeast Asia in March last year, filed for its IPO paperwork a couple of hours ago. Ever since it announced that it had sold its Southeast Asia businesses to Grab, the only information available on the deal involved what both companies have told the media.

The most hotly anticipated IPO of the year gives us more details on its deal with Grab, including the inner workings of how both companies are placed for this region. 

Here are DEALSTREETASIA’s four takeaways on the Uber-Grab deal from the US-headquartered car booking company’s S-1 filing. 

Did Uber get 30% stake in Grab last year? It held 23.2% in Grab as of end-Dec 2018 

When Uber had announced its exit from Grab last year, the deal involved it getting a 27.5% equity interest in Grab. Did Uber get more than what was publicly revealed?

Uber’s IPO filing says that the exit gave it “Grab’s Series G Preferred Stock representing a 30% equity ownership interest….”

Post buying Uber’s SEA businesses, Grab has been fundraising.

Last week, we were among the first to reveal Grab’s plans to raise up to $6.5 billion in a fundraising spree that began with the launch of its Series H round last year. And of December-end 2018, Grab is believed to have raised about $2.9 billion from investors including Toyota ($1 billion), Hyundai, Yamaha, Microsoft, KASIKORNBANK, Booking Holdings, OppenheimerFunds and Ping An Capital. 

Grab’s fundraising explains dilution in Uber’s holdings in Grab to about 23.2 per cent as of December-end, 2018, from 30 per cent earlier. Per its filing, the Grab transaction also saw Uber recording a $2.3 billion gain during the year ended December 31, 2018, in other income.

Uber cannot compete with Grab in SEA until March 2023 

We now understand that Uber had a five-year non-compete with Grab when it sold its SEA operations – both ride-hailing and food delivery – in March 2018 for a 27.5% stake in its Singapore-headquartered rival. 

Unless Grab were to expand its businesses to other geographies outside SEA, the two companies will not be fighting each other until March 2023. And if Uber were to sell its holdings in Grab, it will have to wait 12 months post the sale before it can operate in SEA again. 

While Uber made similar deals with China’s Didi and Russia’s Yandex when exiting those markets, it still continues to compete with these companies in other regions. For instance, it is engaged with Didi for dominance of the Latin American market, as well as Australia, and its Yandex Taxi JV competes with it in certain European countries. 

The filing further reveals that Uber is not represented on the management teams of Grab and therefore does not have a say in the day-to-day management of Singapore firm. 

Uber can sell its holdings in Grab

Uber classifies its holdings in Grab as ‘available-for-sale debt security’. 

The filing shows that deals with Yandex and that with Grab and Didi are structured differently. Uber is locked down from selling any of its holdings in Yandex JV until February 2021 without the consent of the Russian company, and even post that date, any transfer is subject to a right of first refusal in favour of Yandex.

But these restrictions don’t apply to its holdings with Grab (and Didi too). But the US ride-hailing major is subject to both a right of first refusal and a co-sale right in favour of certain shareholders of Grab if it decides to sell any of its holdings in the Singapore firm. 

If Grab does not go for an IPO by March 2023, it may be required to buy back Uber’s holdings in it

Here is an interesting point buried in Uber’s filings. Grab may have to back Uber’s stake in it if the American ride-hailing firm does not get an exit by March 2023.

The filing says: “The Grab Series G preferred stock (“the Grab investment”) includes a redemption right, under which the Company, subject to certain conditions, including the absence of a Grab IPO, may put all or a portion of its investment back to Grab any time after the redemption date (defined as March 25, 2023) for cash. The redemption price is equal to the sum of the issue price of $5.54 with any declared but unpaid dividends, and compounded interest of 6% per annum on the issue price. The compounded interest represents contractual interest payable on the Grab investment generally due at the redemption date. The Grab investment meets the definition of a debt security due to the redemption feature of the invested shares that are not in-substance common stock. As a result, the Grab investment is classified as an available-for-sale debt security initially recorded at fair value, with changes in the fair value of the investment recorded in other comprehensive income (loss), net of tax.”

At the same time, Uber has also said that there is ‘significant uncertainty over the collectability of the contractual interest payable on the Grab investment on or after the redemption date due to, among other factors, the reasonable possibility of a Grab IPO.’

Citing this, Uber said it had not recorded any interest income as of December 31, 2018 (on the Grab deal).

“If the Company had recorded accrued interest on the Series G preference shares, approximately $102 million of additional interest income would have been recognized for the year ended December 31, 2018,” its filing adds.