JAKARTA (TheInsiderStories) – China Didi Chuxing, ride-sharing firm and South Korean SoftBank Group Corp., a technology driving the Information Revolution, will invest up to US$2.0 billion to lead Grab’s current financing round.
In the written statement released on Monday (24/7), Grab, on-demand transportation and mobile payments platform in Southeast Asia, announced that the company will raise an additional $500 million, bringing the total to $2.5 billion in this round from existing and new investors. This is the largest single financing in the history of Southeast Asia.
The new financing, it said, to support Grab’s efforts in strengthening its dominant market position in on-demand transportation and payments in Southeast Asia.
Anthony Tan, Group CEO and Co-founder, said, “We are delighted to deepen our strategic partnership with DiDi and SoftBank. With their support, Grab will achieve an unassailable market lead in ridesharing, and build on this to make GrabPay the payment solution of choice for Southeast Asia.”
Cheng Wei, founder and CEO of DiDi, stated, “By deepening our strategic partnership, DiDi and Grab reaffirm our shared commitment to innovating localized solutions to global urban development challenges from the world’s fastest growing marketplaces.”
Masayoshi Son, Chairman and CEO of SoftBank Group Corp., added, “SoftBank is excited to deepen this partnership and we look forward to continuing to support Grab’s journey.”
Grab operates the transportation network in Southeast Asia and is one of the most frequently used mobile platforms in the region with nearly 3 million daily rides. Today, the Grab app has been downloaded onto over 50 million mobile devices, giving passengers access to the region’s largest land transportation fleet comprising over 1.1 million drivers.
Grab offers private car, motorbike, taxi, and carpooling services across seven countries and 65 cities in Southeast Asia, with 1 out of every 3 passengers using multiple services. GrabPay Credits, a cashless top-up payments option, has grown more than 80 percent month-on-month since its launch in December 2016, a testament to consumer trust in Grab’s platform.
In Indonesia, Grab’s network of 500,000 agents is helping the unbanked and underbanked utilize GrabPay’s platform to participate in the digital revolution. As part of its 5th anniversary celebration in Indonesia, Grab also presented GrabHeli rides for its top users and driver partners during June, 10 – 11.
Grab, committed to ambitious new goals under its US$700 million ‘Grab 4 Indonesia’ 2020 master plan. In the three months since Grab first announced ‘Grab 4 Indonesia’, Grab opened a new R&D centre in Jakarta which will house a few hundred engineers, and finalized its integration of Indonesian O2O start-up, Kudo.
Having achieved these significant milestones in only three months, Grab has expanded its targets: to create 5 million micro-entrepreneurs in Indonesia by 2018, and grow its Indonesian tech workforce to a few hundred by the end of this year.
To support the business and comply with government regulation, Grab has opened R&D center in Jakarta. The center complements the company’s R&D centers in other cities around the world including in Bangalore, Beijing, Ho Chi Minh City, Seatle and Singapore.
With the R&D center, engineers from Indonesia will have the opportunity to make innovations along with other engineers from global tech companies such as Amazon, Facebook and Microsoft. The Grab’s R&D Jakartar is developed on 4,500 square meters of land and will employ more than 200 engineers by the end of this year.
According to Ridzki, Grab started out with only 40 taxi drivers who responded to our call to provide safe, reliable and affordable rides. Five years later, Grab are now in 55 cities with close to 930,000 drivers around Southeast Asia with Indonesia as our largest market in the region.
Today, Grab as a group, has up to 2.5 million rides daily, making it the largest ride-hailing platform and the preferred app that the most drivers and passengers use in Southeast Asia. Grab is in 55 cities across Southeast Asia, and the Grab app has been downloaded onto over 45 million devices, triple the number from June last year.
The GrabPay user base is projected to double every quarter until the end of 2017.
Recently, transportation ministry release a new fare rate for transportation apps through Permenhub No. 26/2017 – which supersedes Permenhub No. 32/2016, became effective on 1 July 2017.
The new rules introduce minimum and maximum tariffs for app-based services that are almost the same as that of conventional taxis; app-based tariffs range from IDR3,500-6,000 per km in Java, Bali and Sumatera, and IDR3,700-6,500 per km in Kalimantan, Sulawesi, Nusa Tenggara, Maluku and Papua.
According to Fitch, the new regulations bringing Indonesia’s application-based transport providers into line with conventional taxi operators may lower the operational risks of conventional providers, but enforcing the rules could be challenging and it will take time for consumers to adapt, says Fitch Ratings.
The agency believes app-based providers are likely to continue disrupting conventional business models in the taxi industry, leaving the credit profiles of conventional operators under pressure in the short to medium term.
The regulations also stipulate fleet quotas for each city and introduce a vehicle road-worthiness test for cars, as is required for conventional taxis, further placing the two services on par. However, Fitch believes enforcing this will be challenging.
In addition, the pricing mechanism slightly favours app-based services, as some set a fixed fare for the whole journey, removing consumer uncertainty as to the total cost of travel.
Conventional taxi operators, like PT Blue Bird Tbk (IDX: BIRD) and PT Express Transindo Utama Tbk (IDX: TAXI), charge flag-fall fees of around IDR6,500 per ride, waiting fees of around IDR40,000 per hour and a minimum charge (if the taxi is ordered by phone) of IDR15,000-20,000 per ride on top of per km fees.
This creates an impression that conventional taxis are more expensive than their app-based peers. App users can also choose higher-rated cars, with each car being rated by the user rating after a ride, increasing the appeal of these services.
Both Blue Bird and Express have teamed up with app-based providers to expand their networks, as this allows them to be included in the app’s car-searching algorithm when a consumer books a car. Blue Bird teamed up with GoCar in 2016, while Express partnered with Grab in 2015 and Uber in 2016.
However, the partnership have seen limited improvement in conventional operators’ financial profiles; Blue Bird’s revenue fell by 32% yoy in the 12 months to March 2017 and its EBITDA fell by 18% yoy. Express’s revenue declined by 48% yoy and its EBITDA declined by 66% yoy during the same period.
Express’s situation is further exacerbated by the large proportion of its drivers under a fixed daily rental scheme; these drivers find it difficult to make payments to Express, as their revenue has declined due to weakening demand.
Express’ leverage, measured by net debt/ EBITDA, increased to 9.5x in 1Q17, from 6.2x in 2016, and receivable days lengthened to 334 days, from 274 days, in the same period.
The new regulations also fail to address app-based providers of two-wheeled transport, such as Grab Bike, Go-Jek and Uber Motor, which operate in a legal grey area. Two-wheeled transport providers are not explicitly banned, but a 2009 Ministry of Transportation statute does not include these vehicles as a means of public transport, citing safety concerns.
Fitch believes app-based two-wheeled transport providers have stolen market share from conventional taxi operators, although to a lesser extent than their four-wheeled counterparts.
(Written by Linda Silaen, Email: email@example.com)