Sea Ltd.'s financial services arm Monee is nearing the point where it could go public, Chairman and Chief Executive Forrest Li told employees, and DBS Group Research estimates the unit could be worth $18 billion to $22 billion.

Li made the disclosure in an Oct. 20 email marking the ninth anniversary of Sea's New York listing, which the Singapore-based company later filed with the U.S. Securities and Exchange Commission. He wrote that Monee was approaching the point where it could "stand on its own two feet," and that going public could give it more resources to grow. The memo gave no venue, timing, size or structure.

For investors in Asia, a listing would matter on two fronts. Monee is a regional lender built inside a former startup, with operations in Singapore, Indonesia, Malaysia, Thailand, Vietnam, the Philippines, Taiwan and Brazil, according to Reuters, as reported by The Straits Times. A separate listing would also put a public price on a business that analysts say Sea's own shares undervalue.

What Monee Brings to a Listing

Monee runs mobile wallets, payments processing, credit and banking services, including the SPayLater buy-now-pay-later product sold through Sea's Shopee marketplace. Most of its revenue and operating income comes from consumer and small-business loans, Sea said in its second-quarter results.

The figures are large for a business Li described as still tiny at the time of Sea's 2017 initial public offering. Monee's revenue rose 58.9% from a year earlier to $1.4 billion in the three months to June 30, and adjusted earnings before interest, taxes, depreciation and amortization rose 12.8% to $288 million. Consumer and small-business loans outstanding reached $11.1 billion, up 62.5%, of which $10 billion was on Sea's balance sheet. Loans more than 90 days past due held at 1% of the book, unchanged from the first quarter.

Group revenue reached $7.8 billion in the second quarter, up 48.1%, with net income of $458.1 million, Sea reported in August. In the memo, Li said quarterly revenue had grown more than 80 times since the quarter of the 2017 listing, from $94 million.

The same email announced a new business, Sea Cloud, an enterprise platform built on the internal cloud infrastructure that runs Shopee, Monee and gaming unit Garena. Li said about 500 staff had spent two years rebuilding that platform for artificial intelligence applications, and that Sea would now sell the capability to outside customers.

DBS Sees Value, and Hurdles

DBS Group Research analyst Sachin Mittal put Monee's value at 12 to 15 times its projected 2027 adjusted Ebitda of about $1.5 billion, The Business Times reported. Sea's share price implies only about $6 billion for the fintech arm, he estimated, so a successful spinoff could add about $18 a share, or 21%, to Sea's value.

DBS kept a hold rating and a $105 price target on the stock. Sea shares fell 9.1% to $80.43 in New York on Oct. 20, the day the memo was sent, The Business Times said.

The brokerage flagged several obstacles. It said a listing before 2027 is unlikely because Monee must clear regulators in each of its eight markets. In Singapore, any investor buying more than 5% of MariBank, Monee's digital bank, needs approval under the Banking Act. MariBank Philippines only obtained its digital banking license in July.

Credit costs are also rising. DBS noted that Monee's provisions climbed 75% to $554 million in the second quarter, which Sea management linked to SPayLater lending and to exposure to riskier markets such as Brazil, about 15% to 16% of total loans. Indonesia's Financial Services Authority will cap debt-to-income ratios for buy-now-pay-later borrowers at 40% from 2027, which DBS said could slow SPayLater growth.

A standalone Monee would also have to deal with Shopee at arm's length. The lender now benefits from the marketplace's user base and from advance customer payments, a relationship DBS said would become harder to manage after a separation.

Where Monee Could List

Sea trades on the New York Stock Exchange and offers Singapore depositary receipts on the Singapore Exchange. In an Oct. 28 article, The Business Times argued that Monee should consider a listing closer to home, including a dual listing on SGX. Sea has not said where it would list the unit or how much of it would be sold.

Sea is weighing for Monee the route it took itself in 2017, one of the main ways founders and early backers cash out in Asia. Singapore stocks have been under pressure, with the Straits Times Index down 5.3% in October.

Sea did not immediately respond to a request for comment when the memo was first reported, according to Reuters. Monee's next public figures will come with Sea's third-quarter results, the first set released since the listing plan became public.