A merger between Grab-backed Indonesian payment firm OVO and local rival PT Espay Debit Indonesia, better known as DANA, could materialise as soon as the first quarter of 2020, according to multiple sources aware of the discussions.
News of a potential merger between the two Indonesian firms first surfaced in September with a Reuters report suggesting that Grab was pushing for the deal, which will see it buying a majority interest in DANA and merging it with OVO.
DANA is backed by Alibaba affiliate Ant Financial and Indonesian media conglomerate PT Elang Mahkota Teknologi (Emtek Group). What complicates the discussion with OVO is that Ant Financial is in the process of increasing its stake in DANA to become a majority owner.
Ant and Emtek own stakes in DANA through a joint venture company, PT Elang Andalan Nusantara (EAN), set up in 2017 to focus on opportunities in mobile payments in Indonesia.
As of 30 September 2019, the Indonesian conglomerate owned a 55 per cent stake in EAN, according to its latest quarterly report. Meanwhile, Ant holds a stake in EAN through API (Hong Kong) Investment Ltd (APIH).
In September, EAN signed an agreement to issue convertible notes to APIH for an aggregate principal amount of up to $110 million. The notes come in multiple tranches and as of 30 September 2019, the Ant subsidiary had subscribed to convertible notes worth up to $55 million.
Convertible notes have the option to convert into equity under predefined conditions such as a future financing round, at a liquidity event (such as IPO or trade sale), or on a maturity date, which is 12 months after the subscription date in this case. With the debt instrument issuance, Ant Financial is set to become the majority stakeholder of Dana.
“There is still a material possibility the deal won’t happen given the complexity of the parties involved,” said a source close to the negotiations.
A successful merger is likely to make the DANA-OVO combination the top payment firm in Indonesia, ahead of Gojek’s GoPay. DANA has so far been seen as the third horse in the race. The market has already seen some shakeout due to the entry of new contender, state-backed LinkAja, which has quickly forged partnerships with both Gojek and Grab.
When asked in September about the potential merger of two of its biggest payment rivals, Gojek’s then-president Andre Soelistyo (who is now its co-CEO) said such a deal would be a little early at this stage of the market’s evolution.
“…a merger this early seems weird for me because it is not like the market share has been stated with enough product stickiness, user stickiness, so I don’t know. I cannot comment on that speculation. But it will be good for them, and it will be easier for us, from two to become one, it is easier to compete with,” he said.
Digital payment firms in Indonesia are seeking to seize the untapped opportunity in a market where more than half of the population lacks an account at a traditional financial services provider. Growing mobile internet usage by a young population has accelerated the growth in e-money transactions.
According to S&P Global Market Intelligence, e-money instruments in Indonesia — and in neighbouring Singapore, Malaysia and Thailand — were used more than twice as frequently as debit and credit cards in 2018.
Source: 2019 Southeast Asia E-Money Market Report, S&P