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Sea Ltd: $6bn financing will cover super app gap

Sea Ltd updates

A low-profile Singapore-based gaming and ecommerce company has just launched south-east Asia’s largest-ever financing.

Sea Ltd is raising about $6bn by selling shares and convertible bonds. It needs the funds for expansion. The group’s ecommerce and fintech divisions are growing rapidly. Gross merchandise value, a metric that measures total ecommerce sales transactions, doubled to $35bn last year. Total payment volume through Sea’s mobile wallet has increased even more.

This growth comes at a steep price. Profits from the lucrative gaming unit have been offset by heavy cash burn in the ecommerce and fintech businesses, as Sea fights to sign up new customers in a tough market.

A negative operating margin of nearly 20 per cent in the 12 months to June reflects the battle for control of the rapidly growing south-east Asian internet economy. Sea’s main rivals are Indonesia’s GoTo and Singapore-based Grab.

Sea has scale advantages. Its New York-listed shares are worth $174bn. The combined valuation of private company GoTo and of Grab, which is on track to close a merger with a US special purpose acquisition company by the end of the year, must be about $80bn.

Size is critical in south-east Asia. Trends favour super apps that offer one-stop shops for everything from food delivery and digital payments to ecommerce. Development and acquisition costs are high.

Sea’s shares have risen 131 per cent to more than $320 in the past year and trade at an enterprise value to forward sales of 15 times, a premium of more than four times that of global rivals such as Amazon and Alibaba. That reflects a dominant position in the Indonesian market and growing gaming unit profits. These nearly doubled to $1bn last year.

The group has sold 11m shares at $318 each. The $477 conversion price of the $2.5bn bond issue represents a 50 per cent premium to that price.

As Sea expands into neighbouring markets, including Vietnam, Malaysia and Thailand, it remains the best bet for exposure to consumer tech in this fast-growing region.

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