Southeast Asia-based super app Grab Holdings Ltd said Monday it prepaid $600 million in debt ahead of a 2026 maturity, taking advantage of excess cash on its balance sheet, Bloomberg reported.

The Singapore-based ride-hailing and delivery company completed the transaction last week, bringing its debt under an outstanding term loan to $517 million, down from the previous balance of $1.117 billion. Grab also has about $200 million in other bank debt.

“Grab is taking advantage of our healthy cash position to reduce our gross debt balance and generate interest savings, given the macroeconomic environment,” said its Chief Financial Officer Peter Oey.

Grab in November bought back about $750 million in debt – part of its $2 billion term loan B – using a Dutch auction tender offer, a format in which the auctioneer sets an opening price that decreases until bids are made, Bloomberg reported That allowed the company to buy back debt at an average of 98.4 US cents on the dollar, Oey was quoted as saying.

“The cost of capital is getting very expensive,” Oey said, pointing to recent interest-rate increases by the Federal Reserve and other central banks. Grab recently took out a $500 million hedge with an interest-rate cap that gives the company full protection against rate changes within a certain range, and partial protection for anything above that, Oey said.

Nasdaq-listed Grab is bracing for rates to go higher at the Fed’s next meeting later this month, the CFO reportedly said.

“Every month that goes by, the interest rate could go up,’ Oey said. The company declined to comment on what its ideal amount of debt would be.

“At this point, we do not have plans for further debt repurchases or prepayment,” Oey said, adding that Grab will continue to monitor the cost of capital. The company doesn’t have outstanding bonds.

According to earlier reports, Grab is targeting losses for adjusted earnings before interest, tax, depreciation and amortization (EBITDA) of between $275 million and $325 million for 2023, compared with an adjusted EBITDA loss of $793 million in 2022. It reported a loss for the year of US$1.74 billion, down from $3.55 billion at the end of 2021.

The company’s net cash holdings, at $5.1 billion at the end of December, are sufficient to cover any funding needs, CFO Oey said.

In a note dated Feb 27, S&P Global Ratings said Grab is on course for positive profitability and cash flow by 2024-2025. The company continues to expand scale while maintaining cost discipline.

“Grab reported 2022 operational results that slightly beat our estimates. Cash burn for the provider of transportation, delivery, and payments solutions was also lower than our expectation,” the research house wrote. The company had a year-end cash balance of $5.1 billion (versus $8.2 billion in 2021). This was in line with the research house’s expectation.

“2023 top-line growth should be robust, amid rising gross merchandize value and controlled consumer incentives. We expect losses to get smaller, as Grab focuses on cutting costs and maintains disciplined spending,” it wrote.

In a separate research note, Maybank Research has upgraded Grab to “buy” from “hold” with a higher target price of $3.80 (from $3.40) as Grab could potentially to return to profit sooner than expected as competition has eased and there’s a confluence of drivers.

Its financial year 2022 (FY22) net loss of $1.74b (51 percent improvement) was narrower than Maybank Investment Bank Group and street estimates at 98 percent/92 percent respectively, mainly due to narrower adjusted EBITDA loss ($793 million, +6% y-o-y) and elimination of the non-cash interest expense of Grab’s convertible redeemable preference shares.

The research house also raised its FY23-FY25 revenue forecast by 5-15 percent, as its gross merchandise value (GMV) is showing resiliency (+11% y-o-y) despite scaling back on subsidies offered to driver-partners and consumers.

Maybank Research also noted that Grab brought forward its group adjusted EBITDA breakeven guidance from second half of 2024 (2H24) to fourth quarter of 2023 (4Q23).

“We think its decision to focus on profitability reflects its market leadership, which has allowed tapering of incentive spending without compromising user retention, even at the expense of top-line growth,” the research house wrote.

Grab has liquidity to drive operations, says S&P Global Ratings