March 26, 2018 / 3:26 AM / 4 months ago

Breakingviews- Uber races towards IPO with Southeast Asian deal

SINGAPORE (Reuters Breakingviews) - Uber is revving up for an initial public offering by exiting another cut-throat market. On Monday, the U.S. ride-hailing giant said it would hand its Southeast Asian arm to Grab, a $6 billion local rival, and take 27.5 percent of the enlarged group. This is a sensible step towards public life – provided Grab can hold onto its leading position.

A customer uses the GrabTaxi app on her smartphone to book for a taxi in Hanoi, Vietnam September 9, 2015. A young, tech-savvy population short on cars but big on smartphones is driving double-digit growth for ride-hailing apps Uber and GrabTaxi in Vietnam, and inspiring some executives to dream of replacing private car ownership altogether. Ride-sharing apps have taken off among Vietnam's rapidly expanding middle class as they provide four-wheeled comfort in a country better known for chaotic swarms of scooters and Southeast Asia's most expensive taxi fares. Picture taken September 9, 2015. This logo has been updated and is no longer in use. REUTERS/Kham

Competition for passengers and drivers has been costly in Southeast Asia. This fast-growing region of 640 million people, many keen smartphone users, should be a major prize. But Singapore-based Grab and Indonesia’s Go-Jek have posed a stiff challenge.

The race towards a 2019 listing under new Chief Executive Dara Khosrowshahi probably catalysed Uber’s withdrawal. Khosrowshahi’s visit to Asia last month, which only took in Japan and India, signalled his priorities. And like earlier retreats in China and Russia, by keeping a stake Uber will have some exposure to future growth.

SoftBank, a major investor in both Uber and Grab, has also advocated consolidation and told Uber to focus on a few core markets. However, it looks like Uber will keep fighting with SoftBank-backed Ola in India.

It is hard to gauge how good a deal Uber got here, since it does not reveal user numbers or financial details for the region. Grab claims more than 90 million downloads of its app and is clearly more widely spread: it operates in 195 cities in eight countries, whereas Uber covers 64. Still, the swap should help Uber keep narrowing net losses which Reuters says stood at $1.1 billion in the fourth quarter.

There are two complications. First, there could be antitrust problems in wealthy Singapore, where Grab and Uber together have a weighty presence, especially when their partnerships with local taxi firms are taken into consideration. Grab, which is filing an application with Singapore’s competition commission, argues the tie-up will make ride-hailing, food delivery and transport more “vibrant and competitive”.

Second, Grab is not the only game in town. It is the only real player with regional scale. But Tencent-backed Go-Jek leads in populous Indonesia and is just beginning to venture abroad. Still, Uber was right to grab this opportunity to exit.

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