Grab Plans $12.5B Bond Issue, GoTo Stock Jumps 6.6%

Grab Holdings, Inc. (GRAB.US) has announced its intention to issue $12.5 billion in convertible bonds, sparking widespread speculation about a potential acquisition of its competitor, GoTo Group. GoTo Group is a major player in the logistics and transportation sector in Southeast Asia. The announcement has fueled optimism about a possible merger between the two dominant ride-hailing and food delivery companies in the region.

On Tuesday, GoTo's stock price on the Jakarta Stock Exchange surged by 6.6%. Earlier, Grab, headquartered in Singapore, revealed plans to issue convertible bonds maturing in June 2030, with part of the proceeds intended to fund potential acquisitions. Grab's ride-hailing and food delivery applications are ubiquitous across Southeast Asia.

Despite Grab's statement on Monday that it is not currently in negotiations to acquire GoTo, the bond issuance has ignited speculation about the prospects of a merger between the two companies. Over the years, the two firms have engaged in on-and-off negotiations, but a merger has yet to materialize, partly due to potential antitrust concerns. Analysts have noted that Grab appears to be raising funds for a potential deal, increasing the likelihood of a transaction.

The convertible bonds are expected to have a coupon rate of zero to 0.5% per annum, payable semi-annually, with a conversion premium of approximately 35% to 40% above Grab's closing price on Tuesday. The terms of the transaction indicate that, in addition to a potential acquisition, Grab plans to repurchase some of its shares, which could help investors hedge their positions in the deal. As of March 31, Grab had $2.74 billion remaining in its share repurchase program. The bonds will be redeemable under certain conditions starting from mid-2028.

Some analysts have expressed skepticism about the move, suggesting that the transaction may attract convertible bond traders but raise more questions than answers for long-term investors. Unless there is a strategic acquisition, it may be challenging to justify the increased capital costs. The deal is being coordinated by Morgan Stanley, HSBC Holdings, and JPMorgan Chase as joint global coordinators.