Malaysian decacorn, Grab Holding Inc., announced will upsize its proposed term loans from the initial planned US$750 million to $1.75 billion - Photo by TheInsiderStories

JAKARTA (TheInsiderStories) – Malaysian decacorn, Grab Holding Inc., announced will upsize its proposed term loans from the initial planned US$750 million to $1.75 billion, showed by Moody’s Investors Service report. The proceeds from the loans will be used for general corporate purposes.

The agency has affirmed Grab’ B3 corporate family rating and the proposed senior secured term loan. Grab and its wholly owned subsidiary, Grab Technology LLC, are the borrowers. The loan is guaranteed by subsidiaries engaged in transport, food and delivery services. The outlook remains stable.

“The rating affirmation and stable outlook balances the increase in debt levels and interest payments against the company’ substantial liquidity position, including a cash balance of $5.3 billion pro-forma for the transaction,” says Stephanie Cheong, a Moody’s analyst for Grab on Tuesday (01/19).

She continued, “The upsizing of the term loan further strengthens Grab’ liquidity profile and increases its financial flexibility during this period of macroeconomic uncertainty.”

Moody’s expects Grab‘ pro-forma cash balance will be sufficient to cover negative operating cash flow, capital spending at its transport and food delivery businesses and scheduled debt service costs over at least the next three years. She said, Grab’ debt levels will increase materially and higher debt service costs will weigh on free cash flow generation.

The app-manager’ value proposition as a Super App, whereby it offers a wide range of services on a single platform, leverages its position as one of the largest ride-hailing companies, focused in Southeast Asia, to achieve efficiencies and provide value added products and services to its partners and consumers.

However, Grab faces strong competition from GoJek in Indonesia, the company’s largest market based on gross revenue, and also from pure play food delivery companies like Delivery Hero (Foodpanda), Deliveroo and Foody in Southeast Asia’s highly fragmented and competitive food delivery market. The low switching costs for customers, drivers and merchants, leave its business susceptible to intense competition.

Despite sizable losses historically, the company has demonstrated its ability to generate earnings in ride hailing markets where it has a leading position. It has also committed to exercising cost discipline, which should support profitability going forward. Moody’s expects the company’ cash flow from operations less capital expenditures to remain elevated in 2020 but to narrow gradually thereafter as the company continues to rationalize costs.

Meanwhile, Grab‘ growth plans for its financial services business will temper overall profitability over the next 2-3 years. Moody’s expects cash will be needed to ramp up new businesses as well as potential acquisitions to grow this segment, which offers cashless payment solutions, and products and services like insurance, lending and wealth management.

As a result, Moody’s does not expect the company’ EBITDA to break even on a consolidated basis before 2023. Somewhat offsetting these risks is the substantial amount of cash and deposits on Grab’ balance sheet around $3.2 billion of unrestricted cash and cash equivalents at Sept. 30, 2020, which Moody’s expects will be sufficient to cover negative operating cash flow, capital spending at its transport and food delivery businesses and scheduled debt maturities over at least the next 2 – 3 years.

Founded in 2012, Grab is one of the largest ride hailing companies, focused in Southeast Asia. In addition to transportation, the platform also offers food delivery, digital payments and other financial services via a mobile app across Malaysia, Singapore, Indonesia, Vietnam, Philippines, Thailand, Cambodia and Myanmar.

Written by Editorial Staff, Email: theinsiderstories@gmail.com