Is this the beginning of the end for DBS Group share? One of the biggest Singapore financial news that set tongues wagging should be the joint application of a digital bank license by Singtel and Grab. Many investors are wondering if digital banks could pose a serious threat to the incumbent banks in the long run.
In my point of view, the move by Grab should be a desperate bid to enhance bottom-line to pave the way for the coming Grab IPO in 2023. I honestly doubt that Grab or Singtel would want to compete directly with DBS Group because all three entities are backed by Temasek Holdings. It will not be the interest of the investment firm to see DBS Group share collapsing like StarHub.
Of course it is still early days for the digital banks but it will be too far-fetched to claim this could signal a slippery slope for DBS Group share price.
The key reason why Grab IPO is on the cards is due to the acquisition of Uber assets in Southeast Asia in 2018. According to Uber IPO prospectus, Grab paid Uber 409 million stocks issued at USD5.54 in exchange for the assets. One of the conditions, including the absence of Grab IPO, is that Uber is entitled to redeem the stocks in cash by 25 March 2023. Given that Uber is currently making huge losses, it is likely that Uber make the cash call in 2023. Thus, an IPO for Grab is inevitable in 2023.
Note that this is an opinion article and not meant to be a financial advice. Please do your due diligence or engage financial advisors before investing in the stock market. Furthermore, I am not vested and have never invested in DBS Group share before. Whether DBS Group share price will surge or collapse has no impact on me. Thus, this article is not meant to induce readers to make any form of investment decisions.
DBS Group share versus Grab share
With a valuation of $14 billion, Grab should be the biggest IPO in SGX in twenty years. Although the valuation is still much lower than DBS Group share, Grab IPO will definitely steal the limelight in local investment scene. Against the backdrop of a dearth of mega IPOs and a slew of privatisations, SGX would grab the Grab IPO (no pun intended) and make sure it will be a roaring success in decades. The major hurdle is the SGX listing rule, which requires applicant to have at least pre-tax profit of at least $30 million for the financial year.
Although Grab does not publish its financial statement, it is well known that the company is still making substantial losses. In the start-up scene, most companies often burn huge amount of cash to capture market share. However, such approach is not sustainable in the long-term. Just look at the recent downfall of WeWork. To avoid the fate of WeWork, Grab should be trying to diversify its businesses into those which are more viable and profitable.
According to MAS eligibility criteria for digital bank license, one of the key requirements is that “the innovative use of technology to serve customer needs and reach under-served segments of the Singapore market”. Because of this, it is unlikely that Grab and Singtel will compete with the banks in the areas like loans or wealth management. These two segments are the key bread-and-butter for the banks and investors should sleep easy that DBS Group price will not be disrupted by Grab.
Two areas that are up for grabs for digital banks should be [This is a premium article. The rest of the content is blocked and can be accessible by SG Wealth Builder Members only. To read the full content, please sign up as member.]
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