New Delhi/Bengaluru: Fintech start-up Paytm, run by One97 Communications Ltd, is in talks with Japan’s SoftBank Group Corp. to raise $1.2-1.5 billion in cash in a deal that could raise Paytm’s valuation to $7-9 billion, according to three people familiar with the matter.
The deal, which has been in the works for nearly three months now, will see SoftBank buying some shares from existing Paytm investor SAIF Partners and founder Vijay Shekhar Sharma as well as investing money in the company, the people mentioned above said on condition of anonymity.
Paytm, India’s second-most valuable Internet firm, may also buy Snapdeal-owned payments firm Freecharge (SoftBank is Snapdeal’s largest shareholder) in a fire sale, though the fundraising is not contingent upon the proposed buyout, the people said.
The fund infusion, one of the largest investments by a single investor in an Indian start-up, would make SoftBank one of the largest shareholders in Paytm, the country’s top mobile wallet which is set to launch a payments bank.
Getting SoftBank on board as a large shareholder will help Paytm reduce the control of China’s Alibaba Group Holding Ltd, currently its largest shareholder, and pre-empt possible government concerns about a Chinese company having a strong hold on Paytm. Financial services is considered a strategically important sector.
SoftBank and Alibaba are themselves intimately connected. The Japanese company was an early backer of Alibaba and its initial investment of $20 million turned into a stake worth more than $60 billion when Alibaba listed its shares in 2014.
“Getting SoftBank will help Paytm change the perception of being a Chinese company with the regulators as well as the public," said one of the three people cited above.
SoftBank and Paytm declined comment.
For SoftBank, the world’s biggest investor in start-ups, an investment in Paytm means an entry into India’s big financial services market.
“It is the Alipay success story it is looking to repeat in India," said the second person, referring to the success of Alibaba’s payment services firm. The proposed deal with Paytm is another instance of SoftBank trying to get it right the second time.
Separately, SoftBank is trying to sell Snapdeal, run by Jasper Infotech Pvt. Ltd, to Flipkart. Another of its portfolio companies, Grofers, is in initial talks with Big Basket for a merger.
SoftBank initially considered investing in Paytm in late 2014 but passed on the opportunity. It instead bet on online marketplace Snapdeal. At that time, Paytm was rapidly expanding its nascent commerce business, which SoftBank was opposed to because of its Snapdeal investment.
After SoftBank passed up on Paytm, the latter ended up raising $1 billion in 2015 from Alibaba and its financial arm Alipay (now called Ant Financial).
Paytm’s owner One97 was valued at about $5 billion in August when the company raised $60 million from Mediatek. It saw a valuation of close to $6 billion in March when three existing investors—Reliance Capital, SVB (Saama Capital) and SAP Ventures—sold their combined stake of about 4.3% to Alibaba and Ant Financial.
Investor interest in Paytm, the top online payment services provider in India, has increased after the government’s move in late 2016 to invalidate old high-value currency notes. That, and the consequent emphasis on digital payments, have worked well for Paytm.
One97 founder Sharma was one of 11 recipients of a payments bank licence from the Reserve Bank of India in August 2015. Paytm Payments Bank, which now houses the electronic wallet business, plans to roll out several financial services products.