Episode Twenty Nine
Many Paths to IPO:
Delano Musafer & Jennie Dong of NYSE
22 December 2020
Welcome back everyone to Indo Tekno. This marks episode number 29 of our series. Selamat datang kembali semuanya! My name is Alan Hellawell. I'm founder of startup consulting firm Gizmo Advisors and venture partner at Alpha JWC Ventures. In the short time that we've been preparing this latest installment of the IPO focus series, "From Warung to Wall Street," we've had a number of major developments relating specifically to Indonesia tech and the IPO opportunity. Bloomberg, for instance, reported just days ago that Peter Thiel's Bridgetown SPAC (short for "Special Purpose Acquisition Company") is considering an up to $10 billion SPAC merger with e-commerce platform Tokopedia. Some of you will recall that we discussed SPACS in episode 18 with Andy Tai of Goldman Sachs. We've actually received a number of inbound queries about SPAC's in the wake of that podcast. Our scheduled guest today, Delano Musafer, Head of Asia Pacific Capital Markets for the New York Stock Exchange (or the "NYSE") was kind enough to extend our original invite to him, to also include his colleague Jennie Dong, the actual Head of SPAC's for the NYSE. I'm thus personally really excited to revisit Indonesia's path to IPO in this, the third episode of "From Warung to Wall Street" with two true authorities in the field. Thanks so much for joining us, Delano and Jennie.
DELANO MUSAFER 1:26
Great to be here, Alan.
Now, I know we have no more than 15 minutes to chat, between the busy morning that Delano is about to embark upon in Hong Kong, and Jennie's evening calls right now 13 hours away in New York. So I want to make the very most of our time right now. Now, Delano for those in the audience who are not familiar with the public markets, can you give us a quick overview of the NYSE?
DELANO MUSAFER 1:48
The New York Stock Exchange is generally acknowledged as the largest, the most liquid and the most prestigious stock exchange in the world. It's been in operation for over 200 years. It's got over 2,500 companies listed with about $28 trillion in combined market cap. Most people probably know about it from watching it in the movies and TV. In particular, Asian issuers will have seen Jack Ma and his team ring the bell back in 2014 in their jumbo $25 billion IPO. On average it trades around $150 billion every day, which is by far the biggest amount of any stock exchange in the world.
Wow, massive. Now when we listed Sea Limited on the NYSE in October, 2017, with your team's help, Delano, we were the first ever Southeast Asia-based tech company to do so. Can you also give us a broader history lesson of Asian listings on the NYSE? When did they begin? How many do we have currently? And maybe what are the top three countries of domicile?
DELANO MUSAFER 2:43
In terms of Asian listings, they've been around for quite a while. 1911 is when the Chinese government listed a bond on the NYSE for constructing railway lines. In terms of more modern listings, Australia had a couple of listings in the 1980s: BHP and Westpac. And for Asia Pacific more broadly; around 1994, a couple of Chinese issuers listed with us. Currently there are about 130 companies from the Asia Pacific region overall listed with us, with a combined market cap of around 2.3 trillion US dollars. By far the most come from China, with over 80 companies, followed by India with 12 and Japan with 11.
So quite a rich history of Asian listings on the NYSE. Now Delano, how has corporate Indonesia figured into this? How many Indonesian companies have listed so far on the NYSE?
DELANO MUSAFER 3:33
In terms of Indonesia, we have two companies. The flagship is Telekom Indonesia which listed with us 25 years ago. They celebrated their 25th anniversary last week. And we also have Indonesia Energy, which is a small energy play, which listed with us a year or so ago.
Got it. So, not as extensive a track record as China for instance. Now Delano, what are the most important elements an Indonesian tech company needs to consider when planning to list on the NYSE?
DELANO MUSAFER 4:00
The most important requirements are first of all, making sure you hit the listing standards of the NYSE. It's very simple. It's a minimum $200 million market cap test and a $40 million minimum free float. There is no profitability requirements on the NYSE which is quite important, especially for tech entrepreneurs. In addition, you obviously need to have an attractive equity story, ideally one with a growth story. And in terms of practical matters, it's important to have some sort of "critical mass". We would say as a general rule of thumb, at least $500 million in market cap, ideally a billion dollars, everything else being equal.
Okay, so there are a number of metrics that the Indonesian corporate wants to aim to as it prepares to apply. Now, Delano in the years that you've been covering Southeast Asia and Indonesia in particular, what developments amindst the startups and the ecosystem down here have you seen that might make you more optimistic that we're getting closer to IPO?
DELANO MUSAFER 4:53
We do think there will be more Indonesian tech companies generally coming to list on the NYSE. The "Big Four" (Grab, Gojek, Tokopedia, Traveloka) are the obvious targets, but others are ready and mature enough now. So I think it's a good time for Indonesian tech companies to list in the US. Most of them have seen the success of the Sea Limited IPO (NYSE: SE), which obviously you're very familiar with. And most want to do the same. I think it's a very good time to consider listing in the US on the NYSE.
That's definitely very encouraging to hear from an executive at the NYSE. Now Delano, are there any major rules or regulations currently, that might make the listing of an Indonesian tech company on the NYSE a bit difficult?
DELANO MUSAFER 5:32
In terms of any rules or regulation that might make it difficult, there are none really. As I said, the main thing is making sure you know about the listing standards. And if you've got a good equity story, you take it from there. I would say the main thing to do is make sure you partner with some good advisors as well, because it's a rigorous process in you need the best partners you can get. The one thing I would say you would need to discuss with your advisors is that there is a tax implication if you do list on an exchange which is not the local exchange; the IDX in this case. For local selling shareholders, there is a different tax treatment on the capital gains side. For that reason, most of the targets we are talking to are considering a dual listing: the NYSE as well as the IDX. So local shareholders can sell down the local tranche, and that helps them circumvent that potential liability.
Okay, so with the exception of some tax considerations, which should in turn lead to some dual listings, there aren't any specific "gotcha's" or challenges unique to the Indonesian tech corporate as they think about listing on the NYSE. Now Delano, given what you know of where Indonesia tech is currently, when would you expect companies to begin applying to list on the NYSE out of the Indonesian tech ecosystem?
DELANO MUSAFER 6:49
Timing wise, we're talking to a number of Indonesian tech companies. So I would expect 2021 and 2022 to be reasonably active on the IPO side.
That's really encouraging news. It would be great to bring an end to what will have been a four year dry spell of Southeast Asia tech IPOs onto the NYSE. Now on to our second featured guest; Jennie. Again, welcome to the Indo Tekno podcast. We in fact have had Goldman Sachs Managing Director Andy Tai on our October 6th episode of "From Warung to Wall Street" to provide a tutorial on SPAC's. It would be great if you could outline the NYSE's history of supporting SPAC's.
JENNIE DONG 7:25
The NYSE supports SPAC's through our trading model, services and tools and visibility for the SPAC IPO through to the business combination. There are multiple ways for a company to enter the public markets. We provide companies more options and we support new public companies no matter what route they choose to go public. Business combinations are another way for companies to enter the public markets.
Very useful context there. Now Jennie, the number of SPAC's issued year-to-date, at 232, is almost four times higher than all of 2019. Total funding raised through SPAC's this year has been roughly 78 billion US dollars, overtaking the sum total of all traditional IPO fundraising this year. Can you explain what's happened?
JENNIE DONG 8:09
This year, SPAC's represent about 50% of the IPO market. What's happened is that we're seeing high quality sponsors, experienced industry executives and financial firms; specificlly sponsors that have a tremendous track record. The other thing that we're seeing grow is a certain layer of investor base for both the SPAC and the business combination. And finally, we're seeing successful business combinations. We're seeing high quality companies partnering with SPAC's and going public through a business combination. These sponsors bring relationships, expertise, the network and public sector expertise to their partners.
Got it. So it sounds like there's a confluence of multiple factors here. Now, Jennie SPAC's have in the past been a largely US phenomenon. How do you think about the relevance of the SPAC in an emerging markets context? Do they serve any different a purpose?
JENNIE DONG 9:00
SPAC's serve the same purpose in emerging markets; namely allowing high quality companies to go public through a SPAC business combination. Historically SPAC sponsors were in the US, but certainly we've seen SPAC's in recent times in Latin America and Asia. And SPAC's are focused on various industry sectors.
I got you. I believe that there are at least 5 or 10 SPAC's that are currently looking into Latin American investments alone right now. Now, Jennie, how should the Indonesian tech entrepreneur evaluate a SPAC against for instance, a traditional IPO?
JENNIE DONG 9:34
For SPAC business combinations, it's certainly another way for companies to go public. There's the traditional IPO route, there's the direct listing, and there is the SPAC business combination. So it really depends on a company's particular situation and how they want to go to market. For the SPAC business combination, there is more certainty around pricing and valuation because it's a negotiation between two parties. Also, many of the business combinations are going to have have additional financing at the back end, such as a PIPE ("Private investment in public equity".) So here at the NYSE, we're talking to private companies all the time, thinking about different ways of accessing the public markets.
Jennie, it's really great to know that there's yet another "arrow in the quiver," as we like to say, or another pathway to IPO for the Indonesian entrepreneur. Delano, with my last question, I'll come back to you. What is the most valuable piece of advice you would give to an entrepreneur with his or her sights set on an NYSE IPO?
DELANO MUSAFER 10:30
The most valuable piece of advice, I would say, again, going back to a previous point: choose good advisors. You only get one chance to get an IPO done right. So don't skimp on getting the best advice in terms of bankers, lawyers and accountants. It makes a huge difference. And leave yourself plenty of preparation time. We typically engage companies one to three years in advance of any IPO. So do your prep work.
Some really useful parting advice and suggestions there, Delano. These are indeed exciting times. I couldn't be happier to be able to squeeze in this precious 15 minutes with you guys. Such a treat to have you on Delano and Jennie, both leading voices in the IPO process joining us today. Thanks so much for your time and insights again.
DELANO MUSAFER 11:15
Thanks very much for your time. Great to be here.
Well, this marks our final podcast of 2020. We're all very grateful here at the Indo Tekno podcast to have had such wonderful guests such as today's speakers throughout the year. And we're just as appreciative of our loyal listeners who have tuned in to our weekly series. We trust you will all have a fantastic year-end, and a prosperous new year. Our podcast today has been translated from English to Bahasa Indonesia by Alpha JWC Ventures. Terima kasih telah mendengarkan. Selamat berlibur, semoga tetap aman dan sehat. Selamat tahun baru. Sampai jumpa di 2021!