Ant transfers 10.3% in Paytm to Sharma

Paytm said Resilient Asset Management BV, an overseas entity owned by Sharma, will acquire the ownership and voting rights of 10.3% of the stake in the company held by Antfin (Netherlands), a unit of Ant Group, formerly known as Ant Financial. Upon successfully completing this transaction, Sharma’s Paytm holding will increase to 19.42%, making him the company’s largest shareholder. Alongside, Antfin’s stake will reduce to 13.5%, according to an exchange filing.

Resilient Asset structured this transaction by offering optionally convertible debentures (OCDs) to Antfin, which allows the Chinese giant to retain economic ownership of the shares. Put simply, Sharma and his Chinese backer have agreed to split the ownership rights and the economic rights of shares in the firm.

 

Ant Group first invested in One 97 in February 2015. The company raised ₹18,300 crore in its IPO in November 2021.

After Monday’s transaction, which was valued at $628 million, Sharma’s ownership increased from 9.12% to 19.42%, making him the single-largest shareholder, while Ant Group’s ownership came down from 23.8% to 13.5%, making it the third-largest shareholder. Elevation Capital, an early-stage venture capital fund and one of Paytm’s earliest backers, still holds around a 15% stake in the company.

“No cash payment will be made for this acquisition, and neither will any pledge, guarantee, or other value assurance be provided by Mr Sharma, directly or otherwise," the press release said.

“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.

Paytm’s application for a non-banking financial company (NBFC) licence was rejected earlier over concerns about Chinese ownership. The latest move could help it apply again, but a Paytm official said on condition of anonymity that it has no such plan.

“The move is not because of the regulator. And, if it was the case, then we could have asked to buy more stake and took Antfin’s shareholding below 10%, which would have taken Antfin’s ultimate beneficiary ownership status away," the Paytm official said.

“Paytm is not looking to apply for an NBFC licence again. With the kind of loans we are doing, we would have become a systematically-important bank since we also have a payments bank licence. Systematically, it becomes more viable for Paytm to operate as a multi-book ownership model instead of building its own book."

A former Paytm executive said, “Paytm is lending insane amounts of money on behalf of other major NBFCs. It is collecting and disbursing money, but RBI (Reserve Bank of India) can’t audit One97. Maybe RBI is looking to change this and may want to audit Paytm since the amount involved is too high, and it might end up giving an NBFC licence."

Paytm operates as a loan service provider (LSP), where it helps NBFC partners in underwriting as well as collections. Its revenue model is fixed plus carry—which is earning a fixed percentage on disbursement and a bonus on collections.

With Monday’s transaction, Antfin’s equity in Paytm becomes debt in Resilient, and Sharma will pay interest to Antfin on this till maturity. “Vijay has got enough timeline where he can arrange for the money and pay," a top Paytm official said on condition of anonymity.

“Antfin is doing a favour on us, and the timeline is in the number of tens of years," the official cited above added. “Based on their good relationship and respect for each other, they have agreed to such a timeline."

The transaction is seen as a move to allay fears of the banking regulator of Chinese control in the financial services business. “The apparent purpose of this is to reduce the Chinese shareholding," said Nitin Aggarwal, the head of banking, financial services, and insurance (BFSI) research at Motilal Oswal Institutional Equities. Ant Group has been unwinding its position in various Indian portfolio firms to comply with local laws.

“The agreement between Vijay and Ant is not known since it’s a private transaction," said another analyst with a leading domestic brokerage firm.

Following the announcement, shares of Paytm shot up 11.44% to touch an intraday high of ₹887.7 before shedding some gains to close at ₹850.70. Paytm has a market capitalization of ₹53,957 crore. Over the past year, the company’s stock has gained 8.46% while the broader market index Nifty 50 gained at least 12.64%.

Paytm’s board, as well as its management and control, will remain unchanged after the transaction. Sharma will continue as managing director and CEO. “Paytm remains a professionally managed company with no identifiable promoter. Further, there is no nominee of Antfin on the board of Paytm," the company said.

In a separate statement, Paytm said Price Waterhouse, the statutory auditor of Paytm Payments Services Ltd, has resigned with effect from 7 August. The auditor did not raise any concern or issue, and S.R. Batliboi & Associates LLP has been appointed in its place.

On 3 August, the fintech company said its average monthly users rose by 19% to 93 million in July from a year earlier. The number of merchants paying subscriptions for payment devices reached 8.2 million as of July 2023, an increase of 380,000 devices in the month, according to its BSE filing. Merchant payment volumes stood at $17.9 billion, up 39% from a year earlier.

The street is taking notice of the turnaround at Paytm.

Analysts at JP Morgan, in a note dated 26 July with an “overweight" rating, said: “Paytm is the leading “fintech horizontal" in India, having built more sources of monetization across payments, commerce and financial services than all of its competitors. This gives it the unique ability to drive monetization and profits across several segments at lower CAC (customer acquisition cost) than peers’.

“We expect Paytm to see strong revenue growth across all its business segments thanks to device monetization in payments, financial services cross-selling, ticketing recovery and rising ad monetization. We see revenues growing at 31% CAGR over FY23-26 to ~$2.2 billion and CMs rising to 57% by FY26. We see Paytm retaining the highest revenue and profit levels among the local vertical and global horizontal peers," the analysts wrote in their note to its investors.