Sea's mega US$6.3b fundraising will test market appetite for e-commerce ambition

SOUTH-EAST Asia's most valuable company is at it again. Consumer Internet group Sea is aiming to raise US$6.3 billion in the largest equity offering of the year.

The Tencent-backed company is proposing to issue 11 million shares, currently valued at about US$3.8 billion, and US$2.5 billion of convertible bonds.

While the group simply said funds will be used for business expansion and other general corporate purposes, the market's attention has naturally turned to fast-growing e-commerce arm Shopee.

Sea's announcement of its mega fundraise comes amid news that Shopee is expanding in Latin America and preparing to launch in Argentina, India and Poland.

There are plans to expand in more than 15 markets including those in South-east Asia and Taiwan, according to a source close to the company.

With the new fundraising deal, Sea has made an opportune move. Its shares have risen spectacularly on revenue growth, soaring 72.7 per cent this year after nearly jumping 400 per cent in 2020.

Investors cheered its expansion even as losses deepened. In its latest quarterly update, Sea said its net loss had widened to US$433.7 million from US$393.5 million a year ago.

The market, however, was more focused on its revenue, which more than doubled to US$2.3 billion in Q2, driven by growth in its gaming and e-commerce arms. The company has also expanded into digital banking and food delivery.

This is not the first time investors have given Sea more fuel for its ambitions. Last December, the group raised US$2.96 billion in an upsized stock offering.

With US$6 billion of cash on its balance sheet as at June 30, the latest deal would potentially boost Sea's war chest to more than US$12 billion. (see Amendment note)

Market movements over the past year have made clear investors' willingness to stomach more risk in exchange for better returns.

The rise of special purpose acquisition companies (SPACs) is one example. Investors put their trust in sponsors in the hope that they will acquire the ideal company, even though SPAC structures ensure that sponsors will always be winners even without sufficient skin in the game.

Of course, Sea is a different entity - with growth potential, a track record and a profitable gaming arm.

But how much more risk will investors be able to stomach? Is the company biting off more than it can chew in its quest for world domination?

Shopee has proven itself in South-east Asia. A relative newcomer, it has beaten Alibaba-backed Lazada to emerge on top.

Its expansion plan aligns with its strategy of targeting emerging economies where e-commerce is still nascent. Shopee has also consistently employed a winning formula of being a late-mover - it lets early entrants educate the market and then learns from their mistakes, according to a report from venture builder Momentum Works.

But investors will also be wise to watch closely as Shopee ventures into new territory. India, for one, could be a difficult market to navigate due to regulatory challenges and the presence of established players with equally deep pockets, such as Flipkart and Amazon India.

And as Sea embarks on an international hiring spree, the company should take care not to fall into the same trap as Alibaba, with its toxic "996" work culture, or Amazon, whose lousy treatment of warehouse workers was exposed by the media.

Only time will tell if Sea's aggressive ambition will translate into stability. At the rate it's going, it might have to change its name from Sea to World.

Read more:

• Sea shares fall after US$6.28b offering, biggest of 2021

Amendment note: The article has been amended to reflect that Sea has a total of US$6 billion in both unrestricted and restricted cash.