Sea Group Announces $1b Convertible Note Offering, Narrows Q1 Losses

NYSE-listed Sea Group on Monday announced a proposed $1 billion convertible senior note offering, hours after reporting narrower net losses for the first quarter of 2020.

The notes to be offered will be due 2025 and convertible to the company’s common stock, cash or a combination of cash and stock.

Convertible notes or bonds grant holders of the security the right to exchange them for equity above a pre-set price, offering the firm scope to reduce coupon payments on debt.

The interest rate, initial conversion rate, offering price and other terms of the notes have not been finalised. Sea intends to grant to the initial purchaser a 13-day option to purchase up to an additional $150 million principal amount of notes, according to its announcement.

Sea plans to use the net proceeds for capped call transactions to reduce future dilution and to repurchase part of a convertible offering that matures in 2023. The company had raised $575 million through the sale of the notes due 2023 in 2018.

It also plans to use some of the proceeds for business expansion and other general corporate purposes, including potential strategic investments and acquisitions.

Sea’s shares were trading up 12.15 per cent at $69.49 in the after-hours market at the time of publishing.

COVID-19 drives growth for Sea businesses in Q1

The tech company’s net losses declined 59.3 per cent on a yearly basis to $280.8 million in Q1 this year. Total adjusted revenue rose 57.9 per cent year-on-year to $913.9 million, while adjusted EBITDA losses more than doubled to $69.9 million.

Sea’s gaming arm Garena — which is the only profit-making business under the group — continued to buoy group earnings but its other units, too, saw an uptake in business as the COVID-19 outbreak drove more users online.

The consumer shift to digital channels was reflected in the rise in quarterly active users for Garena, gross merchandise value (GMV) for Shopee and total payment volumes recorded by Shopee’s mobile wallet.

“The coronavirus crisis is driving a step change in the growth of the digital economy globally, materially accelerating a shift to online lifestyles that is broad, deep, and, in our view, irreversible. We believe that Sea, as a market leader in some of the key sectors of the digital economy, is gaining and will continue to gain a disproportionate share of the resulting growth in our markets,” said Sea chairman and group CEO Forrest Li.

Garena: Digital Entertainment 

Garena saw adjusted EBITDA rise 32.2 per cent to $298.4 million in Q1 2020 compared to the same period last year. The unit’s adjusted revenue climbed 30.3 per cent to $512.4 million.

Its quarterly active users increased 48 per cent to 402.1 million year-on-year, while quarterly paying users soared 72.5 per cent to 35.7 million. Garena’s most popular gaming title, Free Fire, hit a record high of 80 million peak daily active users, according to App Annie data.

The unit’s average revenue per user was $1.3, lower than $1.4 for the first quarter of 2019.

Garena will continue to focus on eSports and community building activities to further expand its user base.

Shopee: E-commerce

Shopee’s adjusted EBITDA losses expanded nearly 10.5 per cent to $260 million in Q1 2020 from $235.3 million a year ago. However, its total GMV accelerated 74.3 per cent year-on-year to $6.2 billion, while total adjusted revenue more than doubled to $314.0 million.

Adjusted revenue as a percentage of total GMV increased to 5.1 per cent in the first quarter of 2020, up from 4.2 per cent for the same period a year ago.

The e-commerce business continues to see EBITDA loss per order trend downwards, dropping 48.3 per cent to $0.60 in Q1 this year.

In Indonesia, Southeast Asia’s most populous market, Shopee registered over 185 million orders in the first quarter, or a daily average of over 2 million orders, marking an increase of 122.6 per cent year-on-year. It is also ranked first in terms of monthly active users, downloads and time spent on app for Android users compared to other shopping apps, according to App Annie data.

Shopee continues to rank first in the Shopping category by downloads in Southeast Asia, and was among the top three worldwide by downloads in the same category for the first quarter of 2020, according to App Annie.

SeaMoney: Digital Financial Services

Sea Group’s newest business arm continues to leverage Shopee’s reach for growth. Total payment volume (TPV) on its mobile wallet exceeded $1 billion in Q1 2020, while quarterly paying users surpassed 10 million.

Moving forward, SeaMoney seeks to expand its suite of online and offline third-party use cases and partnerships. In March, it partnered with Google to offer its mobile wallet as a payment option for the Google Play Store in Thailand.

Sea Group had earlier launched a solo bid for a Singapore digital banking licence in January. If granted, this will significantly increase its capability to offer a wide range of financial products and services across its markets and platforms. A decision on the winning bid will be announced later this year.