Grab Holdings’s $1.5-billion convertible bond issuance will significantly raise its leverage, but S&P Global Ratings said the company has enough liquidity and earnings momentum to absorb the hit without affecting its credit rating.
S&P has kept Grab’s BB- rating with a stable outlook, even as leverage is set to spike to 5.3x EBITDA in 2025—more than triple earlier estimates—before easing to 3.0x by 2027 on the back of steady earnings growth, the ratings agency forecasted.
“A nearly 30% compounded annual growth rate in EBITDA over the next three years will help in this. Grab’s operating cash flow should also improve from higher earnings in its ride-hailing and food delivery segments, as well as increasing customer deposits in its fast-growing digital financial services segment,” S&P said.
Earlier this month, Grab announced plans to offer $1.25-billion in convertible senior notes to beef up its financial muscle for potential acquisitions, which the company eventually upsized to $1.5 billion.
The proceeds from the notes, due in 2030, will be used “to optimise strategic flexibility,” which, according to Grab’s statement, “may include potential acquisitions”. Grab also stated they “continue to maintain a high bar for such transactions”.
The offer was announced after Grab stated in a stock exchange filing that it has not entered into any definitive agreement to buy out GoTo.
With Grab’s bond issuance in place, S&P Global said how Grab spends the proceeds—whether for pursuit of growth or for shareholder returns—is something they are closely monitoring.
“Should the company use the proceeds for a large-scale acquisition or investment, we would reassess its business competitiveness and whether any incremental business improvement compensates for potentially higher leverage,” S&P said.
“We expect Grab to maintain its measured approach toward potential acquisitions. The company has not made any outsized acquisition since its takeover of Uber Technologies Inc.’s Southeast Asia business in 2018. Considering the track record, we believe any acquisition or investment will have a material synergy with Grab’s existing business segments,” it added.
Grab opened this year with an 18% year-on-year increase of revenue to $773 million and booked a profit of $10 million for the quarter, against a $115-million loss in the year-ago quarter.
