SINGAPORE: Singapore-based Grab, the major ride sharing app used in South East Asia, has made its stock market debut on New York's Nasdaq index, with shares initially rising before falling sharply.
Valued at more than $40 billion, the listing was the largest-ever U.S. listing for a South East Asian firm, but instead of a conventional share sale, Grab went public using a shell company, Spac, designed to make the process less expensive.
Using a special purpose acquisition company has become an increasingly popular strategy with start-ups, as it offers more flexibility around voting rights and lower costs.
Shares rose by 21 percent during Grab's market debut, but ended the day more than 20 percent below the launch value.
Grab has yet to report a profit and does not expect to do so until 2023, but chief executive Anthony Tan told the BBC that the firm's profit margins were "industry leading."
The company also reported its earnings for the last three quarters, in order to address criticism that it is avoiding public scrutiny over its financial performance by choosing a Spac listing.
"Grab needs to demonstrate to investors its growth potential. This is why Grab is trying hard to enter finance, because that is one sector really high, in terms of profitability," said Howard Yu of IMD Business school, as reported by BBC.
Grab was a simple taxi company founded by Tan and Tan Hooi Ling in Malaysia a decade ago, but it has evolved into one of the most popular mobile phone apps in Asia, offering rides, food delivery and financial services.
However, Spacs can be more risky for investors and they have not been used as a mainstream investment instrument until fairly recently.
"They were viewed as a shady way of getting a company listed," said Michael Lints, partner at Golden Gate Ventures, as quoted by the BBC.
But due to the Covid-19 pandemic, trillions of dollars of economic stimulus entered the global economy, causing investors to look for new opportunities.
After a record number of Spac listings in the first three months of this year, the U.S. stock market regulator, the Securities and Exchange Commission (SEC), issued a related guidance, while its new accounting rules caused several Spac IPOs to fall sharply.
"Investors started to realize that some of them were not even generating revenues," Lints said, adding that there are signs that investors are increasingly cautious.
The explosive growth of Spac listings in the U.S. is also spreading to the rest of the world, with the London and Singapore stock exchanges allowing their use and Hong Kong considering them.
"With a lot of appetite to invest, other countries are trying to relax regulations to encourage Spac listings so they can bring these high-flying tech companies to list in their local markets," Yu noted.