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Business News/ Companies / News/  Flipkart now considers raising debt
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Flipkart now considers raising debt

Opting for debt instead of equity will ensure that the holdings of the promoters and venture capital investors are not diluted

Photo: BloombergPremium
Photo: Bloomberg

Bengaluru/New Delhi: Flipkart Ltd is considering raising a large round of debt after it closes its ongoing round of fundraising by selling shares, three people familiar with the matter said, asking not to be identified.

Opting for debt instead of equity will ensure that the holdings of the promoters and venture capital investors in India’s largest e-commerce firm are not diluted.

Flipkart has raised roughly $2.5 billion in equity from more than 10 investors so far. The company is in talks to raise $600-800 million in fresh capital, at a potential value of as much as $15 billion, Mint reported on 31 March. Flipkart, which was valued at nearly $11.5 billion when it received $700 million from investors in December, may close the current round within the next month, the people cited above said.

Flipkart wants at least some part of its future capital raises to be sourced via borrowings, two people familiar with the matter said.

The online retailer wants to raise debt to avoid diluting existing shareholders, the people cited above said.

Flipkart hasn’t finalized the amount it wants to borrow, but currently its top executives are discussing raising as much as $200 million in debt, the two people cited above said. Mint couldn’t independently verify the quantum of the planned debt raise.

“The idea is to diversify the capital structure. Existing investors, especially Tiger (Global Management), have pumped in huge amounts of money while the Bansals (Flipkart co-founders Sachin Bansal and Binny Bansal) have also diluted quite a bit of their holdings so far. The company wants to protect the interests of shareholders by looking at debt," one of the people cited above said.

Flipkart didn’t respond to an email seeking comment.

Indian start-ups don’t have easy access to debt, at least not large amounts of it. Some non-banking financial companies such as SVB India Finance Pvt. Ltd (now InnoVen Capital India) do lending in small amounts while Trifecta Capital is also setting up a venture debt fund this year. But most start-ups rely on venture capital equity to survive and grow.

“Start-ups in high-growth phase, especially in the services sector, do not have any hard assets. They will have to look beyond conventional lenders and find appropriate partners who can take a forward-looking view on the business," said Vinod Murali, managing director at InnoVen Capital. SVB India was renamed InnoVen Capital in April after it was acquired by Temasek Holdings.

Companies that have already raised large amount of equity and are market leaders will find it easier to find the right partners to provide debt, he said. “Equity should be used for core business purposes while debt should be used for auxiliary purposes or the discretionary spends," he added.

Unlike Indian start-ups, Amazon.com Inc., the world’s largest online retailer, met a majority of its capital requirements through debt in its initial years. After raising roughly $50 million in an initial public offering in 1997, Amazon piled up more than $2 billion in debt over the next three years rather than issue new shares. Flipkart, founded by former Amazon executives Sachin Bansal and Binny Bansal in 2007, is building a war chest to gain a greater share of India’s retail e-commerce market that is estimated to grow 70% to $6 billion this year.

Although Flipkart is now well-capitalized despite burning massive amounts of cash on advertising, discounts and hiring, it continues to raise capital to build itself a vast financial cushion ahead of an expected initial public offering within the next 18 months.

The Bengaluru-based company is backed by more than 15 institutional investors, venture capital firms and hedge funds including Tiger Global Management, Qatar Investment Authority, Naspers, Accel Partners, Steadview Capital, DST Global and GIC.

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Published: 07 May 2015, 12:40 AM IST
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