Paytm’s deal with Alibaba has several riders
Of the $575 million equity committed to Paytm, about $375 million is subject to certain clauses
New Delhi: Payments processor Paytm’s recent deal with China’s Alibaba has several riders, including one that gives the Indian firm the option of scouting for other investors to fetch a higher valuation, according to two people aware of the matter.
add_main_imageThe $575 million equity committed to Paytm by Alibaba Group’s affiliate Alipay Singapore E-Commerce Pvt. Ltd is structured in three tranches; the largest chunk of about $375 million is subject to certain clauses, according to documents reviewed by Mint.
Some of the clauses include achieving certain performance milestones by Paytm and also a commercial agreement that maps the way the two companies will collaborate in the country.NextMAds
After the first two tranches, both Paytm and Alipay will decide if the company will get access to the remaining $375 million.
If both agree on the third tranche, Alipay’s holding will jump to as much as a 41% stake, valuing One97 Communications Ltd-owned Paytm at about $1.8 billion. Paytm has also retained the option of looking for a better deal from other investors after it receives Alipay’s first two tranches.
“The deal has been structured in a way where the founder and the existing large shareholder in the company will get to make the call about accepting or not accepting the final tranche of the money,” said one of the two people mentioned above. Both declined to be named.
Since the valuation at which Alibaba will deploy $375 million is decided, Paytm will take the final call on whether to go with Alibaba or have a new investor on board, the two people said.
Alibaba did not respond to the email queries. Paytm declined to comment on the deal structure.
“This is a very interesting structure where Alibaba is making staggered payment but locking in value upfront. Also they are offering more than double the valuation in the last tranche which shows the excitement about the e-commerce sector in India,” said Arvind Mathur, president, Indian Private Equity and Venture Capital Association.sixthMAds
In early February, Alibaba Group through its affiliate Ant Financial announced plans to buy a 25% stake in Paytm in a move to tap the fast growing mobile payments business in the country. In October 2014, Alipay Financial services rebranded itself as Ant Financial Services.
Paytm so far has received $65 million for a 10.2% stake in the company the second tranche of $135 million that will take Alibaba’s stake to 25.88% is expected to follow in the next 6-12 months, according to the documents reviewed by Mint.
The shareholding pattern does not assume Paytm’s stock that has been set aside towards employee stock options. With $200 million in bank, Paytm steered by Vijay Shekhar Sharma will be valued close to $773 million.
As growth in China slowly starts to taper, e-commerce firm Alibaba is looking at newer growth avenues like India where growing penetration of smartphones is creating a massive opportunity for companies trying to build a mobile payment ecosystem.
Ant and Paytm want to build on synergies in the mobile wallet space to offer Indian consumers products and services and tap the significant potential of the India mobile payments market.
Paytm is looking to build 100 million mobile wallets by the end of this year from 25 million active wallets currently.
The company processes one million transactions a day across the Paytm app and other merchants like Uber, BookMyShow.
In February, One97 applied to the Reserve Bank of India (RBI) for a payments bank permit that will allow it to offer basic savings, deposit, payment and remittance services to customers.
Separately, On 9 February, three board members—Kunal Bajaj, Jayendra Das, managing director at Sapphire Ventures (previously known as SAP Ventures) and Michael Levinthal—resigned from the board of One97, making room for Alibaba’s representatives.
The names of people joining the board are yet to be announced.
On Friday, Paytm said it has received investment from Ratan Tata, chairman emeritus of Tata Sons Ltd. Tata has invested undisclosed amount in his personal capacity.
“I am very happy that Mr Tata has put faith and trust in our values and mission,” said Vijay Shekhar Sharma, co-founder of Paytm. “There is no better adviser for Paytm on building India’s most trusted mobile payment and commerce platform.”
One97 posted a consolidated net profit of ₹ 5.68 crore for the financial year ended March 2014, down 81% from ₹ 31.21 crore in 2012-13, according to documents filed with the registrar of companies.
The company has 14 subsidiaries in India and offshore and its current investors include SAIF Partners and SAP Ventures.
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First Published:13 Mar 2015, 01:00 PM IST
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