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On Monday, Gojek, the Indonesian ride-hailing and payments giant, and Tokopedia, an Indonesian e-commerce leader, announced plans to merge, creating a multi-billion dollar digital colossus with businesses spanning e-commerce, ride-hailing, and financial services in Southeast Asia’s largest economy.
The deal was expected. Gojek and Tokopedia have been in intense negotiations since December following the breakdown of Gojek’s merger talks with Singapore-based arch-rival Grab Holdings. Grab’s April announcement that it plans to go public on the Nasdaq via a merger with a California-based special purpose acquisition company added urgency to Gojek’s scramble to forge an alternative alliance.
Still, this is big news. The two ventures, to be folded into a holding company known as “GoTo,” have a combined valuation of about $18 billion, which would make it Indonesia’s largest Internet company.
Together Gojek and Tokopedia claim over 100 million monthly active users. The combined entity reported over 1.8 billion transactions worth $22 billion in 2020, with over 2 million registered drivers and 11 million merchant partners.
GoTo’s strength in Indonesia—the world’s fourth most-populous nation, and source of 60% of Southeast Asia’s GDP—could give it a leg up as it faces off against Grab and a second Singapore-based rival, Sea Ltd., in a battle to become the region’s dominant “super app.”
“GoTo will be unique in its ability to cover two-thirds of Indonesian consumer expenditure,” Tokopedia president Patrick Cao told reporters Monday. “If you look at our regional peers, they exceed only at covering one sector.”
Southeast Asia’s Internet economy is likely to grow threefold from last year to $300 billion by 2025, with Indonesia alone accounting for $124 billion, according to a study by Google, Temask Holdings, and Bain & Company.
But some analysts argue conditions in GoTo’s home market could just as easily undercut the company’s bid for regional expansion. Indonesia may be large but its 270 million consumers are spread across an archipelago of 17,000 islands. That poses daunting challenges for e-commerce businesses struggling to lower costs and ramp up scale. And Indonesia remains relatively poor, with a GDP per capita of about $4,000, half that of China. A fifth of the population lives on less than $2 a day. Only about half have bank accounts.
To date, Gojek has been less successful than Grab in expanding into Southeast Asia’s other markets, while Sea’s e-commerce platform Shopee has, by some measures, overtaken Tokopedia as the most visited e-commerce site in Indonesia. Gojek and Tokopedia are “dyed-in-the-wool Indonesian companies, with either no ambition to expand beyond Indonesia, as is the case with Tokopedia, or an inconsistent track record, as is the case with Gojek,” wrote lawyers Joel Shen and Gabriel Li in a commentary piece for Singapore’s Channel News Asia.
Gojek shareholders, who’ll hold 58% of GoTo, include Singapore’s sovereign investment entity GIC, Google, American investment group KKR, and Chinese technology giant Tencent Holdings. Tokopedia’s backers include Softbank’s Vision Fund, China’s Alibaba Group, and Singapore’s Temasek Holdings.
Bloomberg reports that executives from the two companies hope to take GoTo public by the end of the year with listings in Jakarta and the U.S. and are seeking a target valuation between $35 billion and $40 billion. That would be roughly the same valuation Grab has said it will seek when it lists shares on the Nasdaq later this year. Shares in Sea more than tripled last year, giving the company a market valuation of more than $112 billion.
With so much at stake and so many powerful players involved, the three-way battle for control of Southeast Asia’s digital economy promises only to grow more intense.
More Eastworld news below.
Clay Chandler
– clay.chandler@fortune.com
This edition of Eastworld was curated and produced by Eamon Barrett. Reach him at eamon.barrett@fortune.com
EASTWORLD NEWS
Blood gems
On Tuesday, the U.K. sanctioned state-owned Myanmar Gems Enterprise. Downing Street says the sanctions will cut off a key source of funding for the Burmese junta, which seized control of Myanmar 108 days ago. Myanmar is the world’s leading source of jade, with sales earning roughly $975 million a year, although reports suggest up to 80% of the state’s sales are conducted off books to avoid taxation. Many of Myanmar’s jade mines are also exploitative death traps, where workers scrambling over scree are at constant risk of burial by landslide. CNA
Burmese thread
Swedish retailer H&M resumed sourcing from Myanmar, after initially halting manufacturing in the country following the February coup. H&M said it had resumed Burmese operations to “avoid the imminent risk of our suppliers having to close their factories which would inevitably result in unemployment for tens of thousands of garment workers.” Danish retailer Bestseller is likely to resume Burmese sourcing operations, too, citing similar concerns. Nikkei
No Davos
The World Economic Forum canceled its plan to hold its annual “Davos” forum in Singapore this year, as the Asian city state races to limit a resurgence in COVID-19. On Monday Singapore closed all schools, fearing the variant that infected 38 people on Sunday has higher transmission among children. (Taiwan closed its schools Monday, too, as the self-governing island combats its own COVID-19 spike.) The WEF said numerous pandemic legacies “make it impossible” to host Davos as planned and postponed the event until 2022. CNBC
Oxygenated
India is now producing enough oxygen to meet hospital demand, as the nation remains in the grips of a giant COVID-19 wave. Daily case numbers are in decline from a peak over 414,000 on May 6, but the country still registered over 42,000 cases on Tuesday with an average 4,000 daily deaths this past week. Truth is, India always had enough oxygen capacity for its patients. The issue is that 90% of oxygen supply is purchased by the industrial sector. The government has temporarily banned the use of oxygen in industry, opening up supply, but distribution remains an issue. Fortune
Chipper
Japan’s ruling Liberal Democratic Party has formed a task force to ensure Japan’s access to semiconductors, as global industries endure a chip shortage caused by unexpected demand. Japan will work with the U.S.—which has its own semiconductor task force—and other allies to secure access to chipsets. "It is not an exaggeration to say that those who control semiconductors will control the world," said Japan’s task force lead, former economic minister Akira Amari.
Roving rivals
China landed a surface rover on Mars last week, making it the second country ever to do so. The Zhurong rover, named after the god of fire, is part of China’s Tianwen-1 Mars mission, which launched in July last year—the same time NASA launched the Perseverance rover to the red planet. MIT Technology Review
MARKETS AND MOVERS
JD logistics — E-commerce site JD.com is spinning off its logistics unit, JD Logistics, seeking to raise $3.4 billion through an IPO in Hong Kong.
Face the music — Sony Music Entertainment entered a licensing agreement with China’s NetEase, ending an exclusive regional partnership Sony held with Tencent Music. Universal and Warner Music exited exclusive licensing deals with Tencent Music last year. The digital streaming service reported a drop in active users on Monday, although Q1 revenues grew 24%.
Masan — Alibaba is leading a $400 million funding round in the retail wing of Vietnamese conglomerate Masan Group. The investment group will take a 5.5% stake in The CrownX—Masan’s holding vehicle for its retail units.
Xpeng — Electric vehicle maker Xpeng reported net losses of $120.1 million in the first quarter, down from $145 million in the same period last year. Revenues soared 616.1%, to roughly $470 million, with vehicle sales accounting for the majority of income.
Japan — Japan’s economy shrank 1.3% in the first quarter, compared to the fourth quarter of 2020, which was worse than economists had predicted. The contraction came after two consecutive quarterly expansions, as Japan pulled itself out of recession in the third quarter last year.
FINAL FIGURE
China is currently vaccinating close to 14 million people per day, which is the fastest rate of any country in the world. The sudden ramp up in China’s rollout—which has so far administered 393 million doses—was sparked by a spike in COVID-19 cases in Anhui and Liaoning provinces. Of the 393 million total doses, 210 million were given out in the past month. Hefei, the capital of Anhui, administered 360,000 jabs on Friday, which is the most the city of 10 million has given out in a single day yet.
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