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MUMBAI : Japan’s SoftBank is evaluating selling shares worth around $1.5 billion by starting its first tranche of dilution in the proposed initial share sale of One97 Communications Ltd, which runs the Paytm digital payments service, two people with direct knowledge of the matter said.

Paytm is planning an IPO worth around $3 billion, offering SoftBank its largest exit in India after Flipkart.

“A window to sell at least one-third of the overall stake on offer in the IPO may be available on a pro-rata basis for the existing investors, including SoftBank. A total of 3-5% stake may be monetized by SoftBank and, even after the IPO, SoftBank will have holdings of at least 15% in One97 Communications. After the IPO, in subsequent issues, parts of the stake could be sold," one of the two people said on condition of anonymity.

“Apart from the primary issuance, the rest of the funds raised during the IPO will go to the existing investors who would be given secondary exits on a pro-rata basis. However, there could be some investors who wouldn’t want to sell their shares during the IPO, considering there may be tax issues," said a third person, who is directly aware of the discussions.

The board of One97 Communications met on Friday to discuss the proposed mega IPO, the people said. “The discussion was broadly along the timeline of the issue and utilization of the proceeds related to expansion," the second person said, also requesting anonymity.

PTI reported on Sunday, citing an official, that Paytm has received in-principle approval from the company’s board to raise around 22,000 crore through the IPO during the October-December quarter this year. The company is looking at an enterprise value of over 2 trillion for the IPO, which is likely to be discussed at its board meeting scheduled for Friday.

A spokesperson for SoftBank declined to comment.

The company does not have any information on share sales being planned by any existing investor and no shareholder has held any conversation with Paytm’s board on this, a Paytm spokesperson said.

In the proposed listing, One97 Communications may offer to sell at least 10% shares of the company to the public. “As the value of the stakes held by the existing investors is relatively higher than average Indian companies, the share sale can be done only in multiple tranches," said the first person.

Large Chinese investors, including Ant Financial and Alibaba, together hold about 39.9% stake in One97 Communications. SoftBank holds a 20% stake. “SoftBank sees Paytm’s IPO as a significant liquidity event and the 3-5% stake of SoftBank could be sold through the offer for sale (OFS) route that could be opened simultaneously with the IPO," said the first person. In November 2019, One97 Communications raised $1 billion from new and existing investors, including SoftBank Group and Ant Financial, an affiliate of the Alibaba group. They were joined by investors, including T. Rowe Price Associates Inc. and Discovery Capital.

The company was valued at $16 billion when it raised this $1 billion from SoftBank and Ant Financial in 2019. In 2017, SoftBank invested $1.4 billion in Paytm in what was then considered the ‘largest round of funding from a single investor in an Indian digital platform’.

One97 Communications is now trying to gain market share across a spectrum of financial services offerings by launching platforms to transact mutual funds, wealth management products, stocks, and insurance services.

The company has applied for a New Umbrella Entity (NUE) licence as part of a consortium comprising Ola, IndusInd Bank, Zeta, and Suryoday Small Finance Bank, among others. It has also applied for a general insurance licence.

“The valuation of One97 Communications has gone up significantly to more than $25 billion in March because of accelerated demand for digital transactions against the backdrop of the covid-19 pandemic. This demand is steadily increasing," said the second person, justifying why the company is seeking a higher valuation in the proposed IPO.

The digital payments market in India is likely to expand to $1 trillion by 2023, as per a report by NITI Aayog in 2018. For FY2020, One97 Communications posted revenues of 3,280 crore while narrowing its losses by 30% to 2,942 crore. The company has over a 350 million installed user base besides 20 million merchants on its platform.

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