The pandemic repricing arrives for Asia’s ride-hailing players

Photo: Didi Chuxing

The COVID-19 pandemic is beginning to force a repricing for Asia’s ride-hailing players, with US-based Uber Technologies Inc warning this week of an impairment charge on its minority equity investments in its regional peers.

In an announcement before Asian markets opened on Friday, Uber said it expects to impair the carrying value of some of its minority equity investments by $1.9 billion to $2.2 billion in the first quarter of 2020 due to the impact of the pandemic on the estimated value of those investments.

As of end-December 2019, Uber valued its roughly 15 per cent stake in China’s Didi Chuxing at $7.95 billion and its 37 per cent stake in Russia’s MLU BV, a joint venture with Yandex, at $1.22 billion. Its roughly 19 per cent stake in Singapore-based Grab Inc was carried at $2.34 billion, but that investment is classified as a debt investment for Uber. In total, the minority investments are held at $11.51 billion.

Most of the equity impairment is likely to come from DiDi, given that the impact of the virus on Russia has been more muted than most other large countries so far. Russia only imposed a month-long home-isolation regime this month, and as of Thursday, the Federation had 27,938 confirmed cases and 232 deaths, according to World Health Organisation numbers.

“It is probably more on DiDi and evenly split between Yandex and Grab,” said technology trends analyst Lian Jye Su of ABI Research. “The three-month lockdown that was imposed in China seems to be longer than what the rest of the world will consider.”

Data from Aurora Mobile in February this year showed that daily average users on DiDi’s app fell more than 50 per cent over the Chinese New Year period after news of the virus emerged. The app was also suspended in a number of Chinese cities as part of measures to prevent the spread of the coronavirus.

Uber’s carrying value for DiDi valued the company at about $53 billion at the end of 2019, while a 2017 funding round implied a valuation of $57 billion for the Chinese ride-hailer. In a worst-case scenario assuming all of the $2.2 billion impairment by Uber is attributed to the value of its DiDi investment DiDi’s implied valuation could be slashed by about 27 per cent to around $38 billion.

But Grab may not be out of the woods yet.

“China has started its recovery, while the Southeast Asian market has just started to intensify their lockdown measures,” said Su.

For Grab, whose super app platform covers ride-hailing, food delivery, payments and financial services, the food delivery business has perhaps been the brightest spot over the past few months. The company has said its food business in Singapore saw a 20 per cent increase in deliveries in the early part of 2020 before the country imposed workplace and school closures.

But food delivery has yet to become a profitable vertical for Grab, which makes it questionable how much of the greater volume will actually help its bottom line if the company loses money on each delivery. It is also a space where competition is fierce, with new, unexpected rivals jumping into the fray. Singapore bank DBS recently launched an initiative to help food and beverage establishments set up online operations, potentially chipping away at Grab’s slice of the payments pie from deliveries.

Grab’s one vertical that has come closest to profitability  albeit with the caveats limiting the claim to its most mature markets, and on the basis of atypical accounting metrics also happens to be the one where the pandemic’s impact is probably the worst.

Just looking at ride volumes, Singapore Senior Minister of State Janil Puthucheary estimated in February that the pandemic’s hit on the point-to-point transport industry may be between 10 to 30 per cent.

Official data from Singapore’s Land Transport Authority showed that average daily trips for taxis fell to the lowest in at least the past four years, for which data is publicly available. A one-shift taxi in Singapore had only 14.4 rides on average per day in February 2020, down 16.2 per cent year-on-year and 11.1 per cent month-on-month. For a two-shift taxi in the city-state, the average day saw just 22.3 rides in February 2020, down 13.9 per cent year-on-year and 8.2 per cent month-on-month.

If that impact also extends to private-hire vehicles, Grab could see its ride-hailing takings conservatively fall by at least 15 per cent in the first quarter. Considering that social distancing in Singapore and most other Southeast Asian cities has intensified since February, the impact is likely to be significantly higher in subsequent months.

Beyond volumes, Grab has also eased on its take rate, or commission from drivers, and reached into its own coffers to provide support during the pandemic, offering relief funding to its drivers and waiving rentals.

The negative numbers, and Uber’s expected impairment, will hit valuations for Asia’s ride-hailing players at a time when their runways are most threatened. DiDi was said in 2019 to be in the market for $2 billion. The Information reported in March this year that it was close to sealing a $300 million round led by SoftBank.

The Southeast Asian super app platforms might have a little more breathing room. Grab announced an $850 million capital raise in February from Japanese investors, including Mitsubishi UFJ Financial Group Inc and TIS Inc. Indonesia-based Gojek secured about $1.2 billion in March.

Grab could not be reached in time for updated numbers.

Gojek declined to provide specifics on how the pandemic has affected its business, but a spokesperson told DealStreetAsia: “People are going out less and ordering in more, so we see resilience in online commerce, which includes food and package deliveries, cashless payments and digital content. At the same time, we have seen a dip in transport and offline transactions.”

The coming weeks will bring a number of key data points to light. Uber reports its financials on May 7, while SoftBank, which is an investor in both Didi and Grab, will report on May 18. Singapore’s data on taxi trips for March is expected in the coming weeks, if not days.

Valerie Law contributed to this story.

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.