SoftBank Corp is considering a sizeable investment in Paytm owner One97 Communications in a deal that could value the Noida-based company at over $7 billion, according to three people aware of the talks.
If successful, the Japanese conglomerate, which is also in talks to pick up a stake in online retailer Flipkart, will gain significant share in two of the country’s largest digital commerce businesses.
One97, which owns India’s largest digital payments provider, is seeking a higher valuation of up to $8 billion, said the people cited above, with a proposed investment of between $1.4 billion and $1.9 billion. SoftBank is seeking a 20% stake in the Noida-based company.
“A potential transaction is still a few months away,” said one person directly aware of the developments, adding that a deal is not yet final. SoftBank and Paytm declined comment.
Separately, the Masayoshi Son-led company is negotiating the sale of its portfolio company — online marketplace Snapdeal — to market leader Flipkart in a transaction that has the potential to reshape the contours of India’s $16-billion online retail industry.
SoftBank is in talks to pick up a stake in Flipkart and is pushing Snapdeal to merge with its Bengaluru-based rival.
SoftBank’s priority is to close the deal with Flipkart first, sources said. In its negotiations with Paytm, Softbank has also explored the sale of FreeCharge — the digital payments arm of Snapdeal.
The three-cornered negotiations are aimed at consolidating the Indian holdings of SoftBank Corp, which has invested close to $2 billion in Indian technology startups, so far.
The group, best known for being the biggest investor in Chinese ecommerce giant Alibaba, is looking to replicate that success in the Indian market by buying stake in the market leaders in online commerce – Flipkart and Paytm.
Experts are of the view that with the sort of capital at its command, SoftBank — which launched a $100-billion fund (SoftBank Vision Fund) in 2016 backed among others by Saudi Arabia’s sovereign wealth fund — must aggressively seek stake in the country’s top startups.
“If (SoftBank) is really going to bet long term on India and put the kind of money (it) can, then you should go for top players in the market,” said one of the people mentioned above said.
Jasper Infotech, where Softbank has invested about $900 million, owns and operates both online marketplace Snapdeal and FreeCharge. Son’s plan since last year has been to sell Snapdeal to Flipkart and FreeCharge to Paytm in return for shares in both companies, said the sources.
For instance, a merger of Snapdeal with Paytm E-commerce, which too has been explored according to sources, will not give SoftBank a stake in the more valuable payments business of the Vijay Shekhar Sharma-founded company.
One97 demerged its online marketplace business into a separate entity – Paytm E-commerce – where Chinese e-commerce giant Alibaba also invested $175 million recently.
The Noida-based company also owns 49% in Paytm Payments Bank, which holds the payment bank and wallet licence, with Sharma owning 51% as per shareholding regulations.
The increase in valuation of One97 comes as most of the other consumer internet unicorns, or private internet companies valued over a billion dollars, have been facing downward pressure on their valuations. Flipkart was valued at $11.6 billion last week, down from a peak of $15.2 billion while cab aggregator Ola also saw a 40% cut in valuation from $5 billion to $3 billion.
Paytm’s valuation stood at close to Rs 15,260 crore, or about $2.3 billion, after investment by Alibaba and Alipay in 2015, and increased to $4.8 billion after it raised $60 million from Taiwanese semiconductor firm MediaTek in August 2016.
The expected rise in valuation is a result of the government boost for digital transactions since demonetisation in November 2016. Total payments through digital instruments are expected to reach $500 billion by 2020 in India, according to a study by Boston Consulting Group, with customer payment to merchants driving growth.
Paytm has built a significant market leadership in payments, claiming over 8 million transactions daily on the platform including booking Uber rides, payments for food delivery on Swiggy or booking movie and travel tickets besides the staple mobile recharges. It has also pushed aggressively in the offline payments space, with QR codes.
Paytm’s daily transactions are more than double that of its closest competitor, Mobikwik, which claims 3 million transactions.
In future, it will face heightened competition from players like WhatsApp and Flipkart’s PhonePe, which is working with Chinese internet conglomerate Tencent after raising its latest round of investment. Other players like Reliance Jio and Truecaller have also entered the space, besides incumbent banks.
With the competition set to intensify in the payments space, industry experts say a stronger offline approach and deep pockets will determine the winner.
“What will be the differentiator in the next few years is the offline payments space. But the acquisition of offline channel is costly, and the funding will pick out winners and losers,” said Vivek Belgavi, partner and leader for fintech at PwC India.
SOURCE – YOURSTORY.COM