An overseas entity owned by Sharma will acquire 10.3 percent stake in Paytm from Antfin through an off-market transfer. On closing of this transaction, Sharma’s shareholding in Paytm will increase to 19.42 percent, whereas Antfin’s shareholding will reduce to 13.5 percent
Founder and chief executive officer of One 97 Communications Limited Vijay Shekhar Sharma and Antfin have entered into an agreement where Sharma will purchase a 10.3 percent stake in Paytm, the company informed the exchanges on August 7.
The transaction will make Sharma and the promoter entities the largest shareholder in Paytm.
As per the filing, an overseas entity 100 percent owned by Sharma called Resilient Asset Management B.V will acquire the stake in Paytm from Antfin through an off-market transfer. On closing of this transaction, Sharma’s shareholding in Paytm will increase to 19.42 percent, whereas Antfin’s shareholding will reduce to 13.5 percent.
The announcement led Paytm’s share soaring more than 10 percent from the previous close. At 10 am, the stock was trading at Rs 851 on the National Stock Exchange.
“This is an interesting structure where Sharma and Ant Financial have split the ownership rights and the economic rights. To be sure, arrangements like these come with covenants at the back end- in terms of timeline and breaches. Those covenants are not in the public domain yet” said a source close to the development.
This move does reduce the Chinese hangover to a large extent. It also sends out a message to regulators that Sharma is firmly in control. “This also ring fences the company from any hostile bid as VSS is now the single largest shareholder. Elevation capital implicitly backs Vijay, so together they own more than 30 percent in the company, giving them adequate control” the source added.
Apparently Sharma had sounded out RBI and market regulator Sebi about the move and has been visiting Mumbai frequently in the last few months. However, it remains to be seen if this will increase comfort with the regulator. Paytm has always denied that there was any regulator or government pressure to reduce the Chinese stake or influence in the company.
Dynamics of the deal
As per the agreement executed between the parties, Resilient will acquire ownership, and voting rights, of the 10.30 percent block, the company said in a statement. In consideration for the acquisition of the 10.30 percent, Resilient will issue Optionally Convertible Debentures (OCDs) to Antfin, which in turn will allow Antfin to retain economic value of the 10.30 percent stake, demonstrating Antfin’s continued confidence in the business potential, the statement added.
Currently, Antfin holds 23.79 percent stake in Paytm but after the transaction, Antfin will now no longer be the largest shareholder in the fintech major. There is also no nominee of Antfin on the Board of Paytm.
No cash payment will be made for this acquisition, and neither will any pledge, guarantee, or other value assurance be provided by Sharma, directly or otherwise, the company said.
Based on the stock’s closing price as on August 4, the value of the 10.3 percent stake amounts to $628 million.
“I am proud of Paytm’s role as a true champion of made-in-India financial innovation, and our achievements in revolutionizing mobile payments and contributing to formal financial services inclusion in the country. As we announce this transfer of ownership, I would like to express my sincere gratitude to Ant for their unwavering support and partnership over the past several years,” Sharma said.
The Chinese shareholding concern
After the Doklam skirmishes between the Indian and Chinese army, the Indian government has been blocking most of the Chinese investments into India. It had also banned more than 200 Chinese apps over the last three years.
The government and the central bank have also expressed concerns regarding the large Chinese shareholding in Paytm, a major in India’s financial services space. According to Paytm’s disclosure to the markets, this has been one of the reasons why a couple of approvals are pending.
“Paytm Payments Services Limited (PPSL) continued to pursue the requisite approval from government of India past investment from One97 Communications Ltd. into PPSL as per FDI Guidelines. As per RBI’s letter dated Mar’23, PPSL can continue Online Payment Aggregation business, while it awaits approval from government,” the company said in a disclosure that during the June quarter results.
This is for the company’s payment gateway business for which it requires the RBI’s payment aggregator license. RBI had blocked Paytm PG from onboarding new online merchants while it can continue to provide payment services to its existing online merchants.
According to the company, this does not have any material impact on its business and revenues, as most of the large merchants have already been onboarded by one or the other PG firms.
Similarly, Paytm’s Payments Bank (Paytm Payments Bank Limited), an associate company in which Sharma holds 51 percent shareholding and One97 holds the rest, RBI had asked the company to stop onboarding new customers.
“PPBL implemented the various recommendations of RBI as part of the IT review undertaken earlier during FY2023. During the quarter, PPBL submitted the status of compliance to RBI and the same is currently being reviewed by RBI,” the disclosure said.
The exit of shareholders
In February this year, Alibaba Group had sold its remaining stake in Paytm for about Rs 1,378 crore or $167.14 million through a block deal. Ant Group, part of Alibaba Group which also owns Antfin, had also sold Zomato stake late last year for $200 million.
Alibaba had exited online grocery firm Bigbasket back in 2021. In mid 2022, Alibaba had also exited Paytm Mall. Alibaba has been under Chinese government pressure due to his criticism of the Chinese government interference.
Not just Antfin, other Paytm shareholders have been exiting the company. SoftBank has been offloading shares regularly over the last couple of months in small tranches through open market transactions and largely at a profit as Paytm’s share price has been above Rs 830 during the period, which was the cost price for the Japanese investor. The sale in July generated over $200 million for the Japanese investment.
SVF India Holdings (Cayman) Ltd, a SoftBank arm, had sold 13,103,148 shares between February 10, 2023, and May 8, 2023, which represents approximately 2.07 percent of the total shareholding for about $120 million.
Softbank’s exits had to do with the pressure on the Japanese technology investment firm to pare its losses.
Payments firm Paytm reported a 39.4 percent growth in revenue at Rs 2,341 crore for the June quarter (Q1), even as the company narrowed its losses by 45 percent to Rs 358 crore in Q1 from Rs 645 crore it had reported during the same period of last financial year.
The company saw its revenue from payments business go up by 31 percent during the quarter to Rs 1,414 crore. The net payment margin was up 69% year-on-year to Rs 648 crore.
It reported a 93 percent increase year-on-year in revenue from financial services including from its successful and rapidly growing lending marketplace platform to Rs 522 crore.
The company’s cash balance has increased to Rs 8,367 crore during the quarter ending June 2023, as compared to Rs 8,275 crore during the quarter ending March 2023.