GoTo, the holding company that controls Indonesian tech giants Gojek and Tokopedia following their merger in May, has acquired all shares held by overseas entities in its fintech arm GoPay, show filings to the country’s directorate general of law administration, reviewed by DealStreetAsia.
The move is part of a business streamlining exercise ahead of GoTo’s planned public listing.
Through multiple transactions that were completed on Oct 4, GoTo increased its ownership in GoPay to 100% from 70.8% previously as it acquired shares from nine foreign entities, which include Facebook Holdings, Google Asia Pacific, PayPal Inc, Tencent Mobility Limited, and Gamvest Pte. Ltd.
In return for their exit from GoPay, all entities were given a choice to invest their proceeds in the holding company. All entities accepted except Gamvest, which appears to have relinquished the offer to its parent GIC — Singapore’s sovereign wealth fund.
GIC and the rest completed their investments in GoTo on the same date. It is unclear whether the investments are considered as part of GoTo’s ongoing pre-IPO round, which is said to be targeting $2 billion in total proceeds and is expected to be completed next month. DealStreetAsia had reported in September that the round was already oversubscribed threefold.
The investments by GIC and others translate to a 6.8% ownership in GoTo. Although the transactions are technically not considered as share swaps, the exchange of shares suggests that GoPay is worth 23.4% of GoTo, which is targeting a potential valuation of around $40 billion.
GoPay is poised to expand its market share, possibly becoming the largest consumer e-payment player in Indonesia, once it effectively replaces OVO as Tokopedia’s preferred payment partner.
Tokopedia fully divested its ownership in OVO to Grab this week to onboard GoPay.
On top of servicing e-payments and other fintech services, GoPay currently owns 21.4% shares in Bank Jago, Indonesia’s largest digital-first bank, which boasts a market cap of Rp180 trillion ($12.6 billion) as of market closing on Thursday.
DealStreetAsia understands that the acquisition of shares in GoPay from foreign hands was based on a consideration that GoTo’s future operations and IPO would benefit from having its fintech arm fully-owned by the holding company.
While full ownership increases GoTo’s valuation, the move also appears to put the company on safer ground when it comes to complying with Indonesia’s new foreign ownership rules.
On July 1 this year, Indonesia’s monetary authority, Bank Indonesia, issued a regulation that relaxed the limit on foreign ownership in “non-bank payment services providers”, abbreviated in Indonesian as PJP-LSB, to 85% from 49% previously. The rule, however, limits the voting rights of foreign entities to no more than 49% of the total. Companies have been given two years to fully comply with this rule.
Through its subsidiaries, GoPay controls multiple payment-related licences that place it under the PJP-LSB category. The licences cover, among other things: e-money issuance, electronic transfer of fund, QR-code transaction and payment gateway services.
There is a debate within the e-payment industry on whether Bank Indonesia’s new norms apply to direct ownership only or to ultimate beneficial ownership (UBO), in which the owners’ stake in GoTo would matter. Bank Indonesia is expected to provide more clarity on this through implementing the regulations.
If the rule does extend to UBO, moving all foreign investors to GoTo from GoPay may help it avoid violating the norms when it goes public. This is how this works theoretically:
Per DealStreetAsia’s calculation, foreign ownership in GoTo stands at 86.9% after the Oct. 4 transaction. The upcoming IPO should rescue GoTo from violating the 85% threshold because the Bank Indonesia rule clearly states that the ownership of publicly traded stocks, that amount to less than 5% of a company’s overall shares, is considered as domestic-owned. GoTo is expected to float at least 10% of shares at the Indonesia Stock Exchange when it debuts.
The precise timing for the IPO, however, is dependent on when the Financial Services Authority (OJK) will issue the long-awaited regulation that would allow multiple share classes.
GoTo was initially targeting to list in Indonesia by year-end, followed by a US listing. However, the delays to the proposed revamp of Indonesia’s listing rules has pushed the IPO target to early next year.