MUMBAI :One97 Communications Ltd, the operator of the Paytm online payments app, is set to extend ₹743 crore funding to two companies owned by founder Vijay Shekhar Sharma ahead of its $3 billion initial share sale planned this year.
The proposal, among others, will be put to vote at the company’s annual meeting on 30 June, according to a notice to Paytm shareholders, a copy of which has been reviewed by Mint. The note to the shareholders was sent after Paytm’s board meeting on 28 May.
According to the proposal, Paytm will buy ₹491.93 crore worth of optionally convertible debentures to be sold by VSS Holdings Pvt. Ltd, in which Sharma is a director. VSS is short for Vijay Shekhar Sharma.
The debentures will mature in 10 years and bear annual interest of 15%. The funding will be done in one or more tranches, according to the note.
Paytm will own 96% in VSS HoldCo on converting the debentures into shares, which can be done at any time.
Paytm said VSS HoldCo will utilize the funds for its primary business activities. According to filings with the registrar of companies, VSS Holdco is involved in activities closely related to financial intermediation, except insurance and pension funding.
Paytm’s other proposal is to loan ₹250.79 crore to VSS Investco Pvt. Ltd through inter-corporate deposits, or ICDs, in one or more tranches.
VSS Investco will have to repay the amount within 12 months or before Paytm’s IPO, says the note sent by Paytm to its shareholders. Paytm said Sharma will raise external funding or sell his shares in the company to repay the loan. Paytm said this money, too, will be used for the principal business activities of VSS Investco.
Both VSS Holdco and VSS Investco were incorporated in January 2020 and are engaged in similar businesses.
A Paytm spokesperson declined to comment.
Paytm is a leader in the payments space. It also provides utility bill payments, recharges, ticketing, hotel booking, and other financial services to consumers.
Paytm has also proposed to pay Sharma a salary of ₹4 crore a year, even though it has recorded lower revenues and a loss in FY21, which the firm attributed to curbs on businesses due to the pandemic.
Paytm’s total revenue for FY21 has been recorded at ₹3,186.8 crore against ₹3,540.77 crore in FY20, as per the company’s latest annual report.
The company’s loss has narrowed to ₹1,701.01 crore in FY21 from ₹2,942.36 crore in FY20.
Paytm’s board has approved Sharma’s remuneration of ₹4 crore for fiscal 2022 and said that this will be the minimum compensation for Sharma regardless of the company’s financial performance, according to the note to shareholders.
Sharma’s salary was the same last year, but since the payout for fiscal 2021 was effective from 1 November 2020, Sharma was paid ₹3.41 crore last fiscal. Sharma owns 9.05 million shares, or around 14% in Paytm, and his brother, Ajay Shekhar Sharma, holds office and a place of profit in the company.
Foreign investors hold 83.87% in One97 Communications, which is trying to gain market share across financial services offerings.
The company has applied for a new umbrella entity licence as part of a consortium comprising Ola, IndusInd Bank, Zeta, and Suryoday Small Finance Bank. It has also applied for a general insurance licence.
Paytm’s valuation has gone up significantly in the past 18 months to more than $25 billion in March on accelerated demand for digital transactions against the backdrop of covid.
This is why the firm is seeking a higher valuation in the IPO planned to be launched in November, which may provide a partial exit to several existing investors in Paytm, including Japan’s SoftBank that is evaluating selling shares worth around $1.5 billion by starting its first tranche of dilution in the proposed IPO of One97 Communications Ltd.
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