China’s Ant Group may sell about 5% of Paytm via OFS

China’s largest fintech conglomerate Ant Group is likely to sell at least 5% of its 30.33% stake in Paytm parent One97 Communications
before the latter’s Initial Public Offering (IPO) slated for November, sources aware of the matter told ET.

This is because Paytm wants to bring down Ant’s stake to below 25% to comply with norms by Securities and Exchange Board of India (Sebi), for listing
as a ‘professionally managed company’, they said.

The sale is likely to be part of Paytm’s Offer For Sale (OFS).

Ant Group is looking to sell the stake for about $800 million (over Rs 6,000 crore), based on Paytm’s current valuation of $16 billion.

The offer could also be split as a Qualified Institutional Placement (QIP) ahead of the IPO, sources added, just like food delivery platform Zomato had done.

“Ant is definitely looking to offload at least around 5% in Paytm so that the IPO can sail through without regulatory hurdles. Some of the other investors could also offload smaller portions,” a person aware of the matter said.

Treating Ant, Alibaba as Separate Cos

A professionally managed company is one that does not have any promoter group.

Even though not legally binding, regulatory experts believe this can be achieved by cutting the stakes of all investors to under 25% and diluting certain beneficial ownership criteria, as guided by Sebi and under the Companies Act.

Paytm is also likely to request Sebi to treat Ant Group and Alibaba – who hold a combined 38% in the company—as two separate investors, the sources said. Alibaba owns a little more than 7% in the company. Ant was initially the fintech unit of the Chinese e-commerce giant before founder Jack Ma spun it off as a separate entity.

It will be easier for Paytm to comply with Sebi rules if Ant and Alibaba are treated as separate entities with no common interest or strategies, people aware of the matter said.

A spokesperson for Paytm declined to comment. Ant Group and Alibaba did not respond to ET’s emails till press time Thursday.

In a note to shareholders in June, Paytm had said that it would
consider raising a pre-IPO round.

“In the event of a Pre-IPO placement, the size of the offer would be reduced to the extent of equity shares issued under the pre-IPO placement,” it had said.

Earlier this week, Paytm shareholders
approved a resolution to declassify founder Vijay Shekhar Sharma as a promoter to comply with these norms. A professionally run business could help smoothen Paytm’s listing process as it brings down the compliance burden from investors and individuals considered as promoters.

The size of this sale could change depending on its valuation during the public offer as well as in the pre-IPO round. The details have not been finalised yet.

Paytm is targeting a valuation of $24-$30 billion for its IPO.

Newswire Bloomberg
reported on Monday that Paytm was considering a $270 million share sale in a pre-IPO round.

The Noida-based startup has completed the paperwork for its Draft Red Herring Prospectus (DRHP) and is expected to file it to Sebi over the next few days, sources added.

Paytm’s overall offer size is likely to be around $2.3 billion, or Rs 16,600 crore.

According to sources, the offer will likely be split equally into primary and secondary components.

This means Paytm’s investors will sell over Rs 8,000 crore worth of stake before its public listing. Paytm is expected to make its stock exchange debut around Diwali.

It was earlier expected that the secondary offer would be on a “pro-rata” basis between the fintech firm’s major investors, Ant Group, Japan’s SoftBank and Elevation Capital.

Sources, however, told ET that a significant chunk of the secondary sale will be made by Ant Group.

SoftBank holds 18.73%, while Elevation Capital (formerly SAIF Partners) has a 17.65% stake.

ETtech

Personnel changes

Paytm has finalised a list of ‘key managerial personnel’ that will include recent hire Deepankar Sanwalka, who is president (compliances and operations), ET reported earlier this week.

Senior executives such as Madhur Deora, president and group chief financial officer, are also part of the list.

ET
reported last week that Paytm president Amit Nayyar and other senior executives had resigned.

The company has also made several changes to its board of directors.

Douglas Lehman Feagin, senior vice president at Ant Group, has joined the board as an additional director, replacing Eric Xiandong Jing, the chief executive of Ant Group.

Ashit Lilani, the managing partner of Saama Capital, has joined the Board as an independent director, while members Michael Yuen Jen of Alibaba and Todd Anthony Combs of Berkshire Hathaway have left, according to regulatory filings accessed by ET last week. Vikas Agnihotri of SoftBank Vision Fund has joined the board as an alternate director.

Ting Hong Kenny Ho and Guoming Cheng of the Alibaba Group, who were alternate directors, have also seen their terms expire, according to the filings.