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Coupang: comparisons with Amazon have been greatly exaggerated

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Wall Street has pitched Coupang to US investors as South Korea’s answer to Amazon. The ecommerce company is expected to secure a valuation north of $60bn when it lists on the New York Stock Exchange on Thursday, making it the biggest US listing so far this year. But the comparison is overly generous.

The listing is another win for SoftBank, one of the largest investors in Coupang. The Vision Fund set up by the Japanese tech group has already flipped from an annual loss to a record quarterly profit thanks to a mega listing from DoorDash and Uber’s rising share price. 

Markets have warmed to the sorts of capital-burning tech companies operating in the real world that the Vision Fund backs. But this does not mean the companies have hit on a magic formula for profitability. The idea that Coupang could become a trillion-dollar company such as Amazon is based on flimsy numbers. 

Similarities between the two include a leading market share of online sales in their home market, complaints about poor labour practices, heavy investment in distribution and an expectation that online sales will continue to rise after the pandemic. Like Amazon, Coupang is expanding into groceries and has an interest in food delivery. 

The central difference is funding. Amazon turned free cash flow positive eight years after it was founded. It used its own cash flow to fund its expansion. Coupang is more than a decade old and still relies on external investment to keep the lights on. It reported negative free cash flow of $182.5m last year. That puts it at the mercy of capital markets.

Losses are narrowing, which is always a good sign. But these could rise again if rivals opt to invest heavily in attempts to take market share in South Korea’s notoriously competitive online retail sector.

Coupang succeeded in increasing its share of South Korean ecommerce from 18 per cent to just under 25 per cent last year amid the pandemic. But Amazon had an estimated 47 per cent share of the US market last year, according to Statista. It expects Amazon’s share to reach 50 per cent this year. Amazon changed the way in which Americans shop. Coupang has not. Why then is Coupang valued at a five times multiple of trailing sales — higher than that of Amazon? The comparison is a flawed one.

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Paper producer Segezha plans Moscow IPO

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Paper producer Segezha is planning an initial public offering on the Moscow exchange, making it the latest in a series of Russian companies looking to tap surging investor demand.

Segezha, which is owned by oligarch Vladimir Yevtushenkov’s Sistema conglomerate, said on Monday that it wanted to raise at least Rbs30bn ($388m) in the IPO. It is seeking a valuation of more than $1.5bn, according to a person familiar with the plans.

The structure of the offering will allow Sistema to retain control of the company.

Russian companies are rushing to go public in response to high demand for emerging market assets and in case geopolitical tensions with the west make it harder to list.

The stimulus-fuelled global stock market boom and a rebound in commodity prices have helped Russia’s market recover quickly from the pandemic.

The Moscow exchange’s benchmark index hit record highs in March and Russian central bank rates remain near an all-time low. Last year, the bourse doubled its number of retail investors to 10m as homebound traders moved away from bank deposits.

In March, discount retailer Fix Price held the largest Russian IPO since the US and EU imposed sanctions against Moscow in 2014. Ecommerce site Ozon, which is co-owned by Sistema, has more than doubled its valuation to about $12.5bn after going public in New York last year.

But the sell-off of the rouble on tensions with the US and the military build-up on the Ukrainian border has underlined that going public remains precarious.

GV Gold, a midsized goldminer whose key shareholders include BlackRock, said late last month it would postpone its IPO — the third time the company has announced a listing then backtracked — because of “elevated levels of market volatility in both the global and Russian capital markets”.

Segezha, which reported nearly $1bn of revenue last year and operating profit of $242m, is the fifth-largest producer of birch plywood in the world and is in the top two for production of heavy duty “multiwall” paper packaging.

Prices for its products have rebounded during the recent economic recovery, while 72 per cent of its revenue comes from export sales in foreign currencies — allowing it to take advantage of the weak rouble at its mostly Russian cost base.

“Bringing Segezha Group to the public markets will crystallize the value of our investment, raise funds that would allow Segezha Group to continue to pursue its investment projects and provide investors with the opportunity to share in the company’s strong growth and benefit from attractive returns,” Sistema chief executive Vladimir Chirakhov said in a statement.

JPMorgan, UBS, and VTB Capital are joint global co-ordinators and joint bookrunners on the IPO. Alfa Capital Markets, Gazprombank, BofA Securities, and Renaissance Capital are joint bookrunners.



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Spac boom under threat as deal funding dries up

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A crucial source of funding for blank-cheque company deals is drying up, pointing to a slowdown for one of Wall Street’s hottest products after a record-breaking quarter. 

Advisers to special purpose acquisition companies, which float on the stock market and then go hunting for a company to buy, say they are struggling to find so-called Pipe financing to complete their planned acquisitions. Pipe is short for private investment in public equity.

Institutional investors such as Fidelity and Wellington Management have ploughed billions of dollars into Pipe deals since the Spac boom emerged last year, providing a route to the public markets for businesses ranging from established software and entertainment companies to speculative developers of flying taxis and electric vehicle technology. 

But people involved in arranging the deals say Pipe investors are overwhelmed by the sheer volume of transactions and put off by rising valuations. 

“There is a lot of indigestion,” said one senior bank executive. “The pendulum has swung to where if you’re in the market with a Pipe right now, it’s going to be really hard and painful. A Spac goes back into the ocean if you can’t get a Pipe done.”

Spacs raise money when they first list on the stock market but they typically require more capital to fund their acquisition. Large institutional investors also act as a form of validation of the target company’s business prospects and its valuation.

There have been 117 deals announced this year, but the growing backlog in Pipes could prove to be a big roadblock for the 497 blank-cheque companies that are still looking for a deal, according to Refinitiv data.

Only about 25 per cent of Spacs listed since 2019 have completed deals so far. Sponsors typically have two years to complete a merger, otherwise they have to return the capital they raised to investors.

Several market participants said the slowdown would lead to a “flight to quality” and put downward pressure on the valuations of acquisition targets, which have skyrocketed in recent months.

Almost all of the executives the Financial Times interviewed said they were seeing Spac deals recut to offer more favourable terms to Pipe investors. One said: “It’s called the buy side for a reason.” 

Because Pipe investments are considered illiquid — the money is tied up at least until the deal closes and there may be a lock-up period after that — investors can usually get favourable terms. They can see the deal before it has been announced to the public and are almost always able to buy in at the Spac listing price of $10.

But earlier this year, Pipe investors were clamouring to get in on Spac deals. The group of institutions that backed Churchill Capital IV’s acquisition of electric carmaker Lucid paid a 50 per cent premium to the Spac listing price to get a stake, almost unheard of at the time.

The recent reversal has Pipe investors negotiating lower valuations for businesses, giving them larger stakes for the same amount of money, and better pricing terms.

“There’s only so much illiquid exposure investors are going to want to take,” said another bank executive who has worked on numerous Spac deals.

The Pipe slowdown is bad news for banks, which are unable to collect on advisory fees if they cannot sell a deal to investors.

It is also starting to affect the pipeline of Spac launches, lawyers and bankers said. In the first seven days of this month, only four blank cheque companies have gone public. That compares with 41 during the first week of March and 28 in February, Refinitiv data shows. 

“Where we had been at a crazy, mad, rush pace in January and February, we’re kind of at a standstill right now on the IPO side,” said Ari Edelman, partner in Reed Smith’s corporate practice.

For those that already went public and are looking for a target, he added, “the hope is this is just a bump in the road. And then ultimately the deal gets done.”



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UK-backed vaccine maker warns of export restrictions in IPO filing

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Valneva, the French Covid-19 vaccine maker backed by the UK government, has filed for a US initial public offering seeking to take advantage of investor appetite for biotechnology during the pandemic. 

The Paris-listed company, with a market cap of more than €1bn, filed to raise $100m in American Depositary Shares, the day after Vaccitech, the Oxford spinout that owns the platform behind the AstraZeneca vaccine, published its filing

Valneva has a deal worth up to €1.4bn to supply Covid-19 vaccines to the UK, manufacturing the doses in a Scottish factory expanded with government funds. The UK has already agreed to buy 100m shots and has an option to purchase 90m more by 2025. Valneva has already received almost £100m from the government. 

But in its filing, Valneva warned that any restrictions on importing or exporting vaccines out of the EU could have a “substantial” risk to its operation. The vaccine is due to be manufactured in the UK but put into vials and packaged in the EU, it said. 

Shortfalls in supply of vaccines to the EU have led to tensions between the UK and the EU over importing shots and raw materials for the current approved jabs from Oxford/AstraZeneca and BioNTech/Pfizer.

Valneva’s filing comes after it announced positive early stage trial results for its Covid-19 earlier this week, planning to launch a later stage study this month and apply for a UK approval in the autumn.

The phase 1 and 2 study showed the shot elicited more antibodies in the participants receiving the highest dose than are usually seen in recovered Covid-19 patients, with over 90 per cent producing significant levels of antibodies. The jab also induced a response from another key part of the immune system, the T-cells. 

The vaccine, which uses a whole inactivated virus, a more traditional approach than the currently approved shots, could be used as a booster for the vaccinated or to tackle variants of the virus.

Valneva said even though it would be approved much later, it could have a competitive advantage against its rivals. 

“We believe that, if approved, our vaccine, as an inactivated virus vaccine, could offer benefits in terms of safety, cost, ease of manufacture and distribution compared to currently approved vaccines and could be adapted to offer protection against mutations of the virus,” it said in the filing. 

But it also said that it did not yet have the rights to use the strain of virus in the vaccine on the commercial market. It is in the process of negotiating a commercial agreement with the World Health Organisation and the Italian National Institute for Infectious Diseases. 

Valneva is also developing vaccines for Lyme Disease and chikungunya, a virus transmitted by mosquitoes. Total revenue was €110m in 2020, down from €126m in 2019, as sales of its travel vaccines were hit by restrictions on travel during the pandemic. 

It made a loss of €0.71 per share last year, after it had to make a €7.4m writedown, partly because of the limited shelf life of the products. Valneva also had to renegotiate a debt financing agreement last year as it was at risk of not meeting the minimum revenue covenant.



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