Sea Ltd lost more than US$16bil (RM67bil) of value in its biggest daily market drop after India abruptly banned its most popular mobile gaming title. Investors are growing concerned the ban may just be the start of the company’s troubles.

Singapore-based Sea went public in 2017 and quickly became the most valuable company in South-East Asia, based on its potential to expand its offering of gaming, e-commerce and financial services beyond its home turf.

New Delhi’s decision to ban Free Fire, a lucrative title for the company, highlighted Sea’s challenges from geopolitical tensions as well as mounting competition from rivals like Alibaba Group Holding Ltd’s Lazada.

India has banned hundreds of Chinese apps over the past two years, but the expansion of that policy to Sea took management and investors by surprise.

The startup was founded by Forrest Li, who was born in China but is now a Singaporean citizen. Its biggest shareholder is Tencent Holdings Ltd, the Chinese social media giant.

“India is seen as one of the next major growth drivers for Sea’s e-commerce and gaming arm outside South-East Asia,” said Angus Mackintosh, founder of CrossASEAN Research, which publishes reports on Smartkarma.

“With the Free Fire ban, there’s a risk that the authorities would also turn on the Shopee app, and Sea could lose that upside for growth.”

Investors worry that India could potentially also ban Shopee, the second pillar of Sea’s business, where it had about 300 employees and 20,000 local sellers as of December. On Monday, Li reassured shareholders at its annual general meeting that the company had a grip on the situation. He didn’t comment on the Free Fire ban in India.

The markets didn’t buy it. Sea’s New York stock plunged more than 18% overnight as analysts scrambled to parse India’s reasoning and reassess Sea’s growth prospects. Shares have lost almost two-thirds of their value since October.

“Sea is a Singaporean company and we aim to partner in India’s digital economy mission,” the company said in a statement in response to queries from Bloomberg News.

“We are committed to protecting the privacy and security of our users in India and globally, we comply with Indian laws and regulations, and we do not transfer to or store any data of our Indian users in China.”

The Free Fire game was the highest grossing mobile game in India in the third quarter of 2021, according to industry tracker App Annie. JPMorgan analyst Ranjan Sharma slashed his price target by about 40% to US$250 (RM1,046), citing heightened nervousness around Sea’s gaming franchise.

Sea remains one of South-East Asia’s biggest success stories, an online retail and entertainment empire that generates almost US$10bil (RM41.9bil) of annual revenue.

Some 32 of 33 analysts still maintain a “buy” or “overweight” rating on the stock. Its stable of global backers include Cathie Wood’s Ark Investment Management. The superstar fund manager bought more than 145,000 shares on Monday, according to Ark data compiled by Bloomberg.

The most immediate question is whether Sea can appeal India’s decision and reverse it – or, if it fails, whether that ban will extend to its other businesses in the world’s fastest-growing Internet economy.

On the face of it, Delhi has little justification for going after the company. Sea is a Singaporean enterprise – it’s registered there and most of its workforce operate out of the city state. Executives have openly championed programmes to aid employment and education in Singapore. — Bloomberg