One97 Communications will undertake a fresh issue of shares worth ₹8300 crore. It will also be taking a secondary placement of shares worth ₹8300 crores, by its existing stakeholders, during the offer for sale window
One97 Communications Ltd, the owner of the Paytm payments app, on Friday sought the markets regulator’s approval for its ₹16,600 crore initial public offering that is poised to become the country’s biggest initial share sale.
As part of the IPO, India’s second most valuable startup will sell new shares worth ₹8,300 crore, Paytm said in its draft share sale documents. Existing shareholders will sell stocks worth another ₹8,300 crore through the IPO.
Vijay Shekhar Sharma-founded Paytm hopes to tap the demand for stocks of internet companies in India, where the disruption caused by the pandemic has triggered a surge in the usage of online payments, shopping and food ordering apps. Food ordering platform Zomato Ltd’s ₹9,375 crore IPO was subscribed 40 times on Friday, indicating a bidding frenzy.
The fresh share sale will include a pre-IPO placement of ₹2,000 crore, which the company will use for acquisitions, strategic initiatives and entering new businesses. Earlier this year, Paytm applied for the New Umbrella Entity licence from the banking regulator, partnering with Ola Financial Services and fintech Zeta, among others through a consortium, Foster Payments Network Ltd.
The company plans to use ₹4,300 crore of the fresh issue to grow its existing business lines and acquire new merchants and customers.
Earlier this week, the company received shareholders’ approval to raise as much as ₹12,000 crore through its IPO, which Paytm hasn’t fully exercised.
The company may increase its offer size by 20%, based on the feedback it receives from ongoing investor road shows, as allowed by Securities and Exchange Board of India (Sebi) norms, said an investment banker aware of the discussions.
Paytm investors who may be looking to sell their shareholding include founder Vijay Shekhar Sharma; Elevation Capital (formerly SAIF Partners), Softbank Vision Fund, Alibaba and Ant Financial.
For the year ended 31 March, Paytm’s consolidated revenue shrank 11% to ₹3,187 crore, but it managed to cut losses by 42% to ₹1,701 crore.
Highlighting the risks in its draft documents, Paytm stated that it has incurred losses for three consecutive years and doesn’t expect to be profitable in the foreseeable future.
“Because the market for our platforms, products and services is evolving, it is difficult for us to predict our future results of operations or the limits of our market opportunity," the company said.
Paytm now expects its operating expenses to increase significantly after the listing, considering the additional legal and accounting fees.
Paytm accepted that it is a foreign-owned and controlled firm and will remain so even after the domestic listing. The company had faced criticism from some quarters for its Chinese investors after border tensions between the two countries rose.
“Our company is a foreign-owned and controlled company. As a foreign-owned and controlled company, our company is subject to various requirements under the consolidated FDI policy and other Indian foreign investment laws. Such requirements include restriction on undertaking certain business activities without prior government approval or at all, and pricing guidelines applicable to issue or transfer of our equity shares," Paytm said.
Chinese conglomerates Alibaba and Ant Financial continue to hold 37% in One97 Communications.
In an earlier instance, One97 Communications’s investment in its subsidiary, Paytm Insurance Broking was rejected by RBI because of its foreign shareholding, and was directed to comply with the amended Foreign Exchange Management (Non-Debt Instruments) Rules, 2019.
The parent has several subsidiaries, which provide insurance, lending, payments, software services, movie and event ticketing (commerce) among other financial services to customers and merchant partners.
However, more than 50% of the company’s revenues still come from transaction fees for payment instruments provided to merchants. “We derive a majority of our revenue from transaction fees we collect from merchants for our payment services. In FY19, FY20 and FY21, revenue from our payment and financial services accounted for 52.5%, 58.1% and 75.3% of our revenue from operations," said Paytm.
With the onslaught of covid, the company said its revenues from commerce (ticketing) and cloud services fell 38% to ₹693 crore in FY21 from ₹1,118 crore in the previous fiscal.
However, as the pandemic-induced shift to digital payments grows, Paytm has seen its annual transaction value grow from ₹2.29 trillion in FY20 to ₹4.03 trillion in FY21.
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