Grab shares fall sharply after world’s biggest Spac deal

Shares in Singapore-based Grab fell sharply in their Nasdaq debut on Thursday after the south-east Asian super app closed a record $40bn merger deal with a New York-listed blank cheque company.

Grab, one of the most valuable technology companies in the region, offers food delivery, ride-hailing and financial services. It drew backing from global investors including T Rowe Price, Temasek, BlackRock, Fidelity and Abu Dhabi’s Mubadala for the deal.

Shares opened at $13.06 on Thursday, up from the previous day’s close of $11.01, when they were still trading as Altimeter Growth Corp, a special purpose acquisition company, or Spac. But they finished the trading day at $8.75, dragging the merged company’s market value down to $34.6bn at the market close.

“This is definitely pretty symbolic of how Spacs have been doing,” said Lily McGonagle, data analyst at Renaissance Capital, a manager of IPO-focused exchange traded funds. She said that there would be a “lot more hesitancy” after such a high-profile Spac had “done so poorly”.

Spacs are corporate entities that raise money in the public market for the sole purpose of making acquisitions, hence the “blank cheque” moniker. Some analysts had questioned if the Grab listing would happen this year. In April, Grab announced the merger deal with Altimeter Growth just as regulatory scrutiny began to deflate a coronavirus pandemic-era boom in the Spac market.

The deal was then delayed so that Grab could work through a financial audit of its accounts for the past three years.

In addition, Grab grappled with the spread of the Delta coronavirus variant over the summer in a number of its biggest markets, including Indonesia and Vietnam, and trimmed its earnings forecasts several times.

But chief executive Anthony Tan said Grab’s super app strategy — reflecting the range of services it offers on its app — made it more resilient during the pandemic than groups that focused solely on ride-hailing or food delivery. Shares in Uber, Deliveroo, Lyft and others have experienced sharp drops since the summer.

“When mobility is down, food is up. Digital payments also go up. If Vietnam is down, Indonesia is up. That is the beauty of being a regional super app for everyday needs,” Tan said.

Grab, which is not yet profitable, was able to capitalise on investor interest in the digital transformation of south-east Asia to pull off the world’s biggest Spac deal. Shareholder redemptions — investors that chose to opt out of the Spac acquisition — were almost zero.

Tan, who will have 60.4 per cent of the voting power while owning just 2.2 per cent of the newly listed company, said the Spac route had been the right one. “We got to lock in the valuation early. We got to lock in the best day-one cap table,” he said.

Chris Conforti, a partner at Altimeter Capital, said a lot of the froth had come out of the Spac market following “unscrupulous activity”. 

Altimeter put $750m into the so-called private investment in public equity transaction, known as Pipes, that formed part of the deal. Conforti said the large commitment by the Spac sponsor was one of the simple fixes that could benefit the market for the vehicles.

“Spac sponsors should put some money into the Pipe . . . you should lock up your sponsor’s ‘promote’. I don’t think you should just be able to walk away with that. There should be short-term and long-term alignment,” he said, arguing that Grab could serve as a model.

Even so, shares in Altimeter Growth have been volatile since the Grab deal was announced. Analysts said this was likely to ease.

“Once [Altimeter Growth Corp] starts trading as Grab, that will change. It won’t trade as a function of the Spac market, but rather as a fundamental business,” said Nirgunan Tiruchelvam, an analyst at Tellimer. “South-east Asia is on the verge of a tech boom and Grab is front and centre in that story.”

This article has been amended since publication to clarify that Grab is not the most valuable tech company in south-east Asia.