Moody’s Ratings has upgraded the corporate family rating (CFR) of Grab Holdings Inc to B1 from B2 and maintained the positive outlook.

Moody’s said in a note on Monday the rating upgrade reflects its view that Grab will generate positive earnings and cash flows on a sustained basis.

“Although its nascent digital banking operations are currently incurring losses, this is balanced by the strong performance of Grab’s ride-hailing and delivery businesses as well as its conservative financial policies and substantial cash holdings,” said Yu Sheng Tay, a Moody’s Ratings Assistant Vice President and Analyst.

“The positive outlook reflects our expectation that Grab’s credit quality will continue to improve on the back of ongoing growth in its scale, earnings and free cash flows over the next 12 months,

“We also expect the company to execute its growth strategy prudently and maintain very good liquidity,” he added.

He also noted governance considerations are a key driver of the rating action.

“We view that Grab’s prudent approach towards growth and its strong balance sheet reflect an improvement in its financial strategy and risk management, a credit positive,” he said.

It is noted that Grab is on a path to sustained profitability and free cash flow generation, supported by its position as a leading provider of ride-hailing and delivery services in Southeast Asia.

Moody’s believed Grab’s scale will grow in tandem with the increase in internet penetration and adoption of digital platforms in the region.

At the same time, it opined that the company will continue to roll out new products and services that will help retain and attract users to its platform.

According to Moody’s, Grab has also demonstrated robust financial policies by balancing its growth ambitions and profitability.

The company recorded a 15 percent growth in gross merchandize value in the first nine months of the year while reducing its costs.

Consequently, Grab is poised to achieve its first full year of positive Moody’s-adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) and free cash flow in 2024.

Looking ahead, Moody’s expects Grab’s adjusted EBITDA (including share-based compensation) to rise to around $260 million in 2025 and $420 million in 2026 from $142 million in the 12 months ended September 2024.

It projected the firm’s free cash flow (before changes in customer deposits and loan receivables) will rise to $350 million-$510 million from $243 million over the same period.

According to Moody’s, the B1 rating also considers risks stemming from Grab’s nascent digital banking operations in Singapore, Malaysia and Indonesia.

It noted the financial services segment is currently loss-making and Grab targets this business to achieve breakeven EBITDA by the end of 2026.

It also highlighted the financial services business has already achieved strong growth in customer deposits and launched its lending products in Malaysia and Indonesia earlier this year.

However, it noted competition against traditional lenders and financial technology firms could result in delays to its breakeven timeline or steeper losses.

Nonetheless, Moody’s expects Grab to pursue growth at its financial services segment prudently by focusing on lending to existing users of its platform to minimize customer acquisition costs and credit risk.

The rating reflects Grab’s exposure to the evolving legal and regulatory framework in its key markets, said Moody’s.

It said it also considers the company’s complex corporate structure, which stems from partial ownership stakes in several of its operating entities.

Moody’s also opined that Grab has very good liquidity and a strong balance sheet with a net cash position.

It had unrestricted cash balances and short-term deposits of $4.4 billion (excluding customer deposits of $1.1 billion), compared with just $328 million of debt as of September 2024, it said.

It also said Grab’s liquidity is further bolstered by around $758 million of non-current time deposits and investments.

These large cash sources are more than sufficient to cover the company’s debt maturities, planned share buybacks and capital expenditures.

At the same time, the sources also provide the company considerable financial flexibility to withstand losses associated with the ramp-up of its digital banking operations as well as capitalize on inorganic growth opportunities, it noted.

Moody’s has also changed Grab’s Credit Impact Score (CIS) to CIS-3 from CIS-4, reflecting its view that while environmental, social, and governance (ESG) considerations exhibit potential for greater negative impact over time, they have an overall limited impact on the company’s current rating.

It noted Grab’s rating reflects the risks to its growth strategy, its complex organizational structure and key-person risk, although its financial policies and long-term industry tailwinds, given the increasing adoption of ride-hailing, food delivery and digital financial services in Southeast Asia, mitigate these risks.

Moody’s also revised Grab’s governance issuer profile score to G-3 from G-4, reflecting its assessment of improved financial strategy and risk management.

The company’s sizable cash buffers and commitment to cost discipline and profitable growth help to offset the risks pertaining to Grab’s investments in the nascent digital banking sector and its acquisitive appetite, it said.

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