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What is fintech’s fate in S.E. Asia if e-commerce fails?

Indonesia’s Blibli’s drive to list on IDX reveal chinks in Southeast Asia’s fintech growth narrative.



Blibli, an Indonesian e-commerce company, is going public on its domestic exchange. Analysts are bearish. If the IPO does poorly, it will have a deleterious effect on Asia’s fintech story.

That story is glued to e-commerce and serving the digital economy.

Blibli does not bill itself as a fintech company as prominently as Sea Limited (ShopeePay), Grab, GoTo or even more pure commerce plays like Bukalapak. It doesn’t break out revenues based on fintech activities.

But Blibli has an internal fintech department for multiple purposes, including payments, pay later (a type of lending), co-brand credit cards, digital banking, fraud detection systems, and internal finance systems.

Blibli is also attempting to build a superapp. In 2021 it launched an integrated banking service with BCA Digital, the digital arm of Bank Central Asia, and Cermati Fintech Group, a VC-backed consumer finance search and comparison engine. The trio operate a banking-as-a-service platform called Blu for Indonesian merchants.

According to a company press release, “Blibli users can enjoy a complete range of Blu BCA Digital banking services, from account opening, fund transfers, in-app payments, and more using all within the convenience of the Blibli application without the need to download or switch to other applications.”

The e-commerce imperative

Indonesia is the most prominent market where fintech is married to e-commerce, although the same pattern is found in other Southeast Asian nations and India, which in turn have been inspired by the achievements of Alibaba and Tencent in China.

The rise of e-commerce has been funded by private investors, including venture capital funds and local tycoons. Like most internet tech plays, it was a product of a macro environment that rewarded companies to stay private longer as they built up valuations, which were usually justified on the back of rapid user growth.

Early investors used these funding rounds to cash out, while later investors used them to hype up a mega valuation they could turn into a big IPO.

This way of doing business stopped working this year, with rising interest rates. The end to free money has damaged public stock markets (making IPOs hard or unappealing) and made leverage dangerously expensive. But the writing was on the wall already, with a string of IPO flops in the US and in Asia: Uber, WeWork, Grab (via SPAC), Bukalapak.

Even GoTo, which listed on the Indonesia Stock Exchange and seemed to be trading well, has seen its stock tank over the summer.

Now Blibli has begun a book-build for a domestic IPO in the hope of raising Idr8.2 trillion ($530 million), with the listing slated for 7 November. It plans to sell 15 percent of the shares of its corporate parent, PT Global Digital Niaga, in a range of Idr410 to 460; at the top end that would value the company at $3.5 billion, up from the $2 billion valuation it received during its last private funding round in October 2022.

Increasing its valuation would be a success, given the current difficult market conditions.

Blibli’s IPO: reasons for optimism

There are some reasons to be optimistic. Blibli is a leading marketplace for fresh food, online travel, and consumer electronics. It also provides goods and services to multinational companies, including operating a physical store network for Samsung Electronics.

The company touts a super-bullish report by consultants Frost & Sullivan and Euromonitor that suggests they can grow into a total addressable market of $436 billion, thanks to Indonesia’s big population and rising consumer wealth.

Blibli has grown by selling more valuable products as Indonesia has emerged from COVID lockdowns, and its customers are spending more on the platform. It is weaning itself off discounts (funded by its investors) by selling more international brand name goods.

The company was founded in 2011 by the Hartono family, a Chinese-Indonesian family whose deca-billions were built in tobacco and clove cigarettes, as well as a stake in Bank Central Asia.

BCA’s digital arm, BCA Digital, is Blibli’s fintech partner. BCA Sekuritas is joint bookrunner of Blibli’s IPO, along with BRI Danareksa Sekuritas.

Reasons for worry

Despite these advantages, independent analysts are skeptical about the IPO. First, they look at Blibli’s listed peers and see only bad news. Second, they don’t see Blibli achieving profitability. Third, they don’t know if investors will continue ot support the company’s massive cash burn.

Arun George of Global Equity Research, writing on Smartkarma, says, “A credible path to profitability remains a pipe dream.” The company is too wedded to the business model of becoming operationally efficient through massive user growth and adding new business lines – a scaling strategy developed in the era of free money.

Heavy discounting and the move into physical stores has blunted the company’s ability to improve its margins. Consumers are now habituated to subsidized prices, making it hard for e-commerce companies to restructure. Blibli’s negative Ebitda (earnings before interest, tax, depreciation and amortization) is in contrast to pledges by the likes of Bukalapak, Sea and Grab to be profitable by 2023 or 2024.

Debt-heavy and equity-light

Oshadhi Kumarasiri, equity analyst at LightStream Research, writing on Smartkarma, says Blibli has a bigger problem: its heavy debt burden. Its annualized free-cash-flow burn is currently bigger than the cash on its balance sheet – suggesting the company lacks long-term funding.

Lacking the equity backing of its larger peers (Sea, Grab, GoTo and Bukalapak all achieved major equity funding rounds before going public), Blibli has come to rely on bank loans. This might have been tenable in the era of free money, but the rapid rise in interest rates will make this funding expensive, perhaps prohibitively so.

Therefore the company will likely to have to slash costs, as its larger competitors have done.

“Looking at Shopee’s struggles in the past year and Bukalapak’s rapid fall following the IPO, we think investors are unlikely to be interested in the Blibli IPO,” Kumarasiri said.

“This could mean that Blibli’s days are numbered as it is resting all hopes on the IPO to fund its short-term loan repayment obligations.”

Worse, the company intends to use up to 75 percent of the IPO proceeds to pay down its debts, leaving a small sum to cover operating losses, Kumarasiri says.

Fintech in Asia: dangers ahead

Although Blibli’s challenges are its own, it is part of a wave of e-commerce companies with substantial fintech operations – all of which are now challenged by the new regime of rising interest rates. Inflation in Indonesia has been below 2 percent for decades, but this year it hit 6 percent.

Even the country’s leaders, such as GoTo, are struggling, despite having poured massive resources into growing the digital economy. They have enjoyed generous backing by VCs and by global tech companies, with Alibaba, Tencent, Facebook, PayPal and others major investors in the sector.

It’s the same story in the rest of Southeast Asia, with many local tech groups expanding into neighboring markets. Just as payments transformed Alibaba and Tencent into superapps, fintech – payments, lending, banking, and ancillary services like insurance – has been twinned with e-commerce in Southeast Asia.

Blibli’s IPO is the first in Indonesia since the new macro regime, which has not been kind to the stocks of its peers. Those companies that are able to restructure into sustainable business models can survive, but fortunes have changed quickly, catching many companies unprepared.

Even if Blibli’s IPO is a success – which will be good for the investors – it is not a sure bet that Blibli will achieve profitability, or even be able to service its debts. There are dozens of other companies like Blibli in the region, and if e-commerce takes a knock, then fintech will too.

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