Singapore-based online services provider Sea raised $884m on Friday in an initial public offering that provided exits for investors including China-headquartered internet group Tencent, showing the potential for Chinese investment in the region.
Sea issued almost 59 million American Depositary Shares on the New York Stock Exchange priced at $15.00 each, increasing the number from 49.7 million and the price above the IPO’s $12 to $14 range. If the underwriters take up the full over-allotment option, the size of the offering would rise to more than $1.01bn.
Founded in 2009, Sea runs a diversified online business that incorporates a digital media and game offering with more than 40 million monthly active users (Garena), an e-commerce marketplace with more than 4 million active buyers each month (Shopee) and a financial services playform integrated with 37 local banks (AirPay).
The company recorded a net loss of $165m in the first six months of 2017, up from $87.1m the year before, largely due to it putting significant money into marketing Shopee, while its revenue rose from approximately $167m to $195m in the same period.
Although Sea has not disclosed firm details concerning its earlier funding, Tencent invested at a relatively early stage and held a 39.8% stake pre-offering that was diluted to 35.1%, though it did buy $50m of shares in the IPO. Hedge fund sponsor Hillhouse Capital, converted a $230m note to equity to come out with a 5.1% share of the company.
In addition to being an investor in Sea, Tencent is also one of its main rights partners. Sea paid it more than $32m in royalties and licensing fees for its games in the first half of 2017, an amount largely consistent with the three years before. It also continues to provide financing to Sea, and issued a $100m convertible note earlier this year, for which Sea has already paid $1.7m in interest.
Tencent’s bet is indicative of how China-based internet companies are increasingly investing substantial sums for stakes in online-focused companies elsewhere in Asia in order to enter the local markets.
Tencent itself put up a seven-figure sum to lead a round currently being raised by Indonesia-based ride hailing and online services provider Go-Jek that is expected to top $1bn, and which includes e-commerce firm JD.com. It has also made significant investments in Korea-based companies CJ Games and YG Entertainment in recent years.
E-commerce group Alibaba has invested $2bn to take an 83% stake in Singapore-based Lazada, and is a major investor in another online marketplace, Indonesia-based Tokopedia. It was reportedly in talks to invest in the $2bn round closed by Singapore-based on-demand ride platform Grab in July this year, but ultimately declined to take part.
Alibaba’s financial services affiliate, Ant Financial, has meanwhile provided $200m for the payment spinoff of Korea-headquartered internet company Kakao, and backed Southeast Asia-based fintech companies Ascend Money, Emtek, Mynt and M-Daq.
Southeast Asia is a logical starting point for China-based internet companies to expand geographically, particularly since India’s startup scene has so far proven more volatile to investors. Holding substantial stakes in startups could eventually help each of them establish a directly linked network of services that transcend national borders.
At the other end, many China-based operators including Tencent and Alibaba have experience in backing and also running a range of online services, and can bring invaluable experience to startups looking to not only dominate their local markets but bring in users in regions where e-commerce is relatively underdeveloped.
Sea’s other investors include President International Development Corporation, which forms part of food producer Uni-President Enterprises, conglomerate JG Summit Holdings, Farallon Capital Management, Cathay Financial and GDP Venture, all of which took part in its $550m funding round in May 2017.
Malaysian state-owned fund Khazanah Nasional had led Sea’s $170m series D round in March 2016, and Singaporean government-owned investment firm Temasek, GDP Venture and Mistletoe supplied an undisclosed amount six months later.
Sea’s shares opened at $16.25 on Friday and briefly made it as far as $16.99, before closing at $16.26, which still represents a good result for investors.
The IPO’s underwriters are Goldman Sachs (Asia), Morgan Stanley International, Credit Suisse Securities (USA), CLSA, Citigroup Global Markets, Cowen and Company, Nomura Securities International, Piper Jaffray, Stifel, Nicolaus & Company, Mandiri Sekuritas, Tudor, Pickering, Holt & Co Securities, BDO Capital & Investment Corporation, Cathay Securities Corporation Offshore Securities Unit, DBS Bank and Viet Capital Securities.