TikTok to invest $1.5B in GoTo unit to restart e-commerce in Indonesia

The TikTok app logo is seen in this illustration taken Aug 22, 2022. REUTERS/Dado Ruvic/Illustration/File photo

JAKARTA  -China’s TikTok will invest $1.5 billion to become controlling shareholder of an e-commerce unit of Indonesia‘s GoTo Gojek Tokopedia, as it seeks to restart its online shopping business suspended by regulators in Southeast Asia’s largest economy.

Indonesia banned online shopping on social media platforms in October to protect smaller merchants and users’ data, forcing TikTok to close its e-commerce service TikTok Shop.

The market was among few where the short video app operator launched TikTok Shop earlier this year to leverage a large user base and to challenge fast-growing online sellers such as Shein and PDD Holdings’ Temu, whose viral marketing on TikTok helped their rapid growth.

Shares in GoTo, whose business includes ride-hailing, delivery and financial services, tumbled 8.3 percent after the announcement, as some investors took profit from the stock’s recent rally on expectations of a deal with TikTok.

“We need to see what kind of market disruption will happen after this partnership,” said analyst Maximilianus Nico Demus at Pilarmas Investindo Sekuritas.

Under the deal, TikTok will buy 75.01 percent of GoTo’s Tokopedia, Indonesia‘s biggest e-commerce platform, for $840 million and inject TikTok Shop’s Indonesia business into the enlarged Tokopedia entity.

“The strategic partnership will commence with a pilot period carried out in close consultation with and supervision by the relevant regulators,” the two firms said in a Monday statement.

Many of Indonesia‘s more than 270 million people are active social media users.

TikTok, owned by China’s ByteDance, has 124 million users in the Southeast Asian country and has been looking to translate that large user base into a major e-commerce revenue source.

The transaction will be concluded by the first quarter of 2024 and Tokopedia will receive a $1 billion promissory note from TikTok that can be used to fund working capital needs, the companies said.

“TikTok has committed to invest over $1.5 billion in the enlarged entity over time, to provide future funding required by the business, without additional dilution to GoTo,” they said.

Tokopedia competes in Indonesia‘s e-commerce market with Shopee from Singapore-headquartered Sea and Lazada from Chinese e-commerce giant Alibaba.

Indonesia‘s e-commerce industry is set to expand to about $160 billion by 2030 from $62 billion this year, showed a report by Google, Singapore state investor Temasek Holdings and consultancy Bain & Co.