Ahead of IPO, Paytm to infuse ₹743 Cr in founder’s investment firms

Digital payments major Paytm, through its parent One97 Communications Ltd, is set to infuse ₹743 crore via debt instruments in two investment firms promoted by its founder Vijay Shekhar Sharma. The proposal will be officially put to vote at Paytm’s annual meeting, slated for June 30.

The move has raised media and public interest because Paytm is set to launch a mega $3 billion IPO later this year. The company is rated to be India’s highest valued unicorn — it was last valued at $16 billion in 2019, when Softbank and Ant Financial invested $1 billion in it. The IPO is expected to garner wide interest, both among retail and institutional investors from India and abroad.

Also read: The what, when and why of Paytm’s $3-billion IPO

While the Paytm board has the option to veto the proposal, it is not likely, considering Sharma is also a key stakeholder in the company. Experts have observed that he may have sought to tap Paytm’s financial muscle for his investment vehicles ahead of its IPO. The move may also help the fintech player diversify its holdings.

The investment structuring

Citing a note sent to shareholders after a Paytm board meeting held on May 28, Mint reported that the company proposes to buy optionally convertible debentures (OCDs) worth ₹491.93 crore in VSS Holdings Pvt Ltd, where Vijay Shekhar Sharma (VSS) is a director.

The debentures have a 10-year tenure and annual interest rate of 15%, it added.  The funding will be made across one or more tranches. If it converts the debentures to shares, Paytm will end up owning a 96% stake in VSS HoldCo — this can be done at any point.

As per the note to investors, Paytm will separately fund VSS Investco through ₹250.79-crore inter-corporate deposits (ICDs), again in one or more tranches. Per the terms of the agreement, VSS Investco needs to repay the loan within 12 months or ahead of Paytm’s IPO.

The Mint report said Sharma will raise external funding or sell his shares in his company to repay the loan.

What do the two firms do?

Both VSS HoldCo and VSS Investco were incorporated in January 2020. The two firms “invest in and acquire or hold securities, shares or debentures in one or more companies and to sell, purchase or otherwise deal in shares, stocks, bonds”, said the note, as quoted by Inc42.

The two companies primarily manage Sharma’s personal investments, it explained. Till date, Sharma has invested in several start-ups such as Kawa Space, Unacademy, Innov8, Milaap and Nurturing Green, it added.  Further, he has played key roles in start-up incubators and funding platforms.

With the fresh funds, both VSS HoldCo and VSS Investco plan to expand their business activities across the country.

Financial status

Late last month, Paytm announced that its revenue had plunged 9.9%, from ₹3,541 crore in fiscal 2019-20 to ₹3,187 crore in 2020-21. It did, however, pare down its loss by 42%, from ₹2,943 crore to ₹1,704 crore over the year.