Indonesia’s OVO narrows losses, but new norms will make it tougher to rely on Grab

Early backers of Indonesia's first digital wallet unicorn OVO have left the company as Southeast Asia ride-hailing and fintech takes over.

Indonesian e-wallet OVO reported healthier financial numbers in 2020, but it faces headwinds as new norms on foreign investors’ voting rights and shareholding may make it more difficult to rely on a capital infusion from Grab.

Losses of the company narrowed to $205 million last year, compared with $369 million in 2019, show documents filed with the US Securities and Exchange Commission (SEC) by its investor Grab earlier this week. However, it was still higher than the $123.16 million loss clocked in 2018.

Meanwhile, revenues improved to -$20 million in 2020 from -$158 million in 2019, according to the Form F-4 filing.

The negative revenue is on account of an accounting treatment change wherein consumer incentives now reflect as a contra revenue item — i.e. deducted from gross revenue — instead of a sales and marketing expense. However, the new methodology has had no impact on OVO’s bottom line, balance sheet, or cash flow, said the SEC filing.

The improvement in financial numbers shows that the COVID-19 pandemic was a turning point for four-year-old OVO, which achieved unicorn status in 2019.

There was a dip in revenues from offline merchants and transportation — OVO is a payment method for Grab’s ride-hailing services — amid the COVID-induced lockdowns of last year. However, this was more than offset by the higher demand in food delivery payments and e-commerce payments.

Overall OVO saw a surge in transactions and new users last year. The company’s e-commerce total payment value (TPV) grew by 110% between March and September 2020. This was led by a nearly 50% growth in lending disbursement and an over 15% TPV increase in food delivery transactions.

While the payment business unit is still the largest contributor to OVO’s revenue, the company has expanded to other financial services and products, including investments, insurance, and lending services.

OVO started off in 2017 as an e-wallet of the Indonesian conglomerate Lippo Group’s venture builder. It diversified into other fintech businesses in 2019. That year, the company acquired local fintech startup Taralite to venture into lending, and also took a stake in Bareksa to foray into mutual funds.

OVO continues to expand into more financial products. Besides forging a partnership with Prudential Indonesia for providing personal insurance, it has also teamed up with local insurance firm PT Asuransi Simas Insurtech for premium motorcycle insurance this year. The company has also launched a sharia-compliant mutual fund product managed by its investment management partner Syailendra Capital and Bareksa.

“We are continuously focused on improving OVO’s user experience,” Harumi Supit, head of corporate communication at OVO, told DealStreetAsia.

Foreign ownership conundrum

Super app Grab and Indonesian marketplace Tokopedia had bought stakes in OVO in 2018. Back then, OVO was understood to be a major link in the plans of both Tokopedia and Grab as both firms had failed to obtain a payments licence in Indonesia.

Cut to the present day, and both firms are trying to untangle the regulatory complexities posed by their shareholding and voting rights in OVO.

Bank Indonesia — the country’s central bank — recently barred an entity from holding a controlling stake in more than one digital wallet in the country, creating a challenge for GoTo, formed from the merger of Grab’s homegrown rival Gojek and Tokopedia in May this year. (Gojek runs its own payments app GoPay.)

GoTo president Patrick Cao said in a media briefing in May that Tokopedia is considering divesting its stake in OVO.

The new central bank regulation, effective since July 1, also caps foreign investment (based on ultimate beneficial ownership of shares) in payments firms at 85% and puts a 49% ceiling on the voting power of foreign shareholders in such companies.

As of December last year, Singapore-registered Grab owns 39.2% of OVO’s parent PT Bumi Cakrawala Perkasa (BCP) — the biggest shareholder.

Tokopedia owns a 36.1% stake in BCP through its wholly-owned subsidiary Digital Investindo Jaya.

The Lippo group holds 7.2% through two subsidiaries — PT Inti Anugrah Pratama and PT Prima Ecommerce Global. The Tokyo Century Corporation owns 7.5%. Meanwhile, PT Wahana Inovasi Lestari, owned by Tokopedia owners Leontinus Alpha Edison and William Tanuwijaya, own 5% in BCP.

PT Ide Teknologi Indonesia, owned by Indonesian tech platform Kudo’s founders, also owns 5%. 

While the foreign ownership in BCP does not breach the 85% cap, the voting rights held by Grab and other foreign shareholders breach the 49% limit, according to the Risk Factors section laid out in the SEC filing.

The filing adds that Grab has contractual rights over an additional 5% in BCP. If the shares subject to such contractual rights are foreign-owned, BCP could be deemed to be in non-compliance with the foreign investment limit.

Impact on ties with Grab

Given Tokopedia and Gojek’s merger to form GoTo, and the new regulations from Bank Indonesia, OVO’s shareholding will have to be restructured, and will likely affect Grab’s consolidated financial results in the future.

Grab and other foreign shareholders of OVO, besides holding over 49% of the voting power of BCP, also hold certain special governance rights including veto rights over a number of strategic and operational matters, which may violate the new norms.

Regarding the new regulation, Grab and other shareholders in OVO will be required to adjust the voting structure of OVO and the rights of OVO’s foreign shareholders. This may, in turn, prevent Grab from continuing to recognise OVO as a consolidated affiliated entity in Grab’s financial statements, the F-4 filing said. 

Further, Grab and other foreign shareholders may be limited in their ability to make cash contributions into OVO for additional equity or acquire other existing shares as such transactions would lead to an increase in foreign shareholding or foreign voting power beyond the prescribed limits.

If Indonesian shareholders or parties are unwilling to make such contributions, OVO’s business, results of operations, financial conditions, and prospects could be materially and adversely impacted.

Singapore Reporter/s

In Singapore, we are looking to double our reporting team by this year-end to comprehensively cover the fast-moving world of funded startups and VC, PE & M&A deals. We want reporters who can tell our readers what is really happening in these sectors and why it matters to markets, companies and consumers. The ability to write precisely and urgently is crucial for these roles. Ideal candidates must have to ability to work in a collaborative, dynamic, and fast-changing environment. We want our new hires to be digitally savvy and ready to experiment with new forms of storytelling. Most importantly, we are looking for hard-hitting reporters who work well in a team. Collaboration and collegiality are a must.

Following vacancies can be applied for (only in Singapore).

Following vacancies can be applied for (only in Singapore).   

  • A reporter to track companies/startups that have raised private capital, and have the potential to become unicorns. SEA currently has over 40 companies with a valuation of over $100 million and under $1 billion.
  • A reporter who can get behind the scenes and reveal how funding rounds are put together, or why they’ve failed to materialise. She/he in this role will largely focus on long-format stories. 
  • A journalist to track special situations funds, distressed debt and private credit (from the PE angle) across Asia.

Singapore Reporter/s

In Singapore, we are looking to double our reporting team by this year-end to comprehensively cover the fast-moving world of funded startups and VC, PE & M&A deals. We want reporters who can tell our readers what is really happening in these sectors and why it matters to markets, companies and consumers. The ability to write precisely and urgently is crucial for these roles. Ideal candidates must have to ability to work in a collaborative, dynamic, and fast-changing environment. We want our new hires to be digitally savvy and ready to experiment with new forms of storytelling. Most importantly, we are looking for hard-hitting reporters who work well in a team. Collaboration and collegiality are a must.

Following vacancies can be applied for (only in Singapore).

Following vacancies can be applied for (only in Singapore).   

  • A reporter to track companies/startups that have raised private capital, and have the potential to become unicorns. SEA currently has over 40 companies with a valuation of over $100 million and under $1 billion.
  • A reporter who can get behind the scenes and reveal how funding rounds are put together, or why they’ve failed to materialise. She/he in this role will largely focus on long-format stories. 
  • A journalist to track special situations funds, distressed debt and private credit (from the PE angle) across Asia.