SoftBank's Paytm top-up to come with riders

MUMBAI: Japan's SoftBank has laid down new terms and conditions as part of the latest financing round in digital payments player One97 Communications, which runs Paytm, two people familiar with the deal said.

SoftBank Vision Fund (SVF), an existing investor in Paytm, is learnt to have stipulated that the company should go public within five years from the time of completion of the transaction, a person in the know told ET. If the IPO does not take place, then SoftBank will have the right to sell its stake to a rival company, sources told ET.

The $1 billion funding round is likely to see US asset manager T Rowe Price invest around $150-200 million in One97, with existing backers SoftBank and Alibaba Group affiliate Ant Financial infusing the rest, ET had reported in its October 15 edition.

"SoftBank has finally signed the documents to invest in the new round of funding, but with conditions," said a person in the know.

Looking at Strategy to Cut Losses
"After a few rounds of negotiations, these terms have been agreed upon and the deal is nearing closure. A listing condition is common among financial investors. The Japanese company feels that Paytm has reached a stage where such a term can be included," said the person. SoftBank, which first invested in the company in 2017, holds a 19% stake, while the Alibaba Group, through Ant Financial and directly, owns 38% in One97.

The Vijay Shekhar Sharma-led Paytm has been in talks since early this year to shore up funds amid mounting losses, growing competition in the digital payments sector from Google Pay and Walmart-owned PhonePe, and no clear path to monetise its customer base. But Sharma has stressed that his company is now looking at a strategy to cut losses and turn profitable amid a rising chorus against money-losing startups in India and the Silicon Valley.

A SoftBank spokesperson declined to comment on the new terms of the deal while a mail sent to Paytm founder Sharma on Wednesday remained unanswered till press time. About ten days ago, Sharma in a text message to ET, had denied the condition to list in five years.

These developments come in the backdrop of stricter terms that SoftBank is enforcing on a bunch of its portfolio firms worldwide in the aftermath of the WeWork debacle which led to a $4.6 billion loss for the Japanese internet and telecoms major.

The Masayoshi Son-led group, which runs a $100-billion technology fund, has in the past two years led large financing rounds at steep valuations in loss-making startups, which has come under criticism after the botched-up IPO plans of WeWork.

"In India too, SoftBank has gone slow as far as new investments are concerned because they are spending more time on due diligence," said another person in the know. The delay in closing funding rounds is also because SVF is in the process of raising a new fund, which has not been easy after WeWork's collapse and Uber's underperformance post IPO. Last week, Son, while announcing SoftBank's earnings, said that as of September 12 they had stopped making fresh investments from SVF 1 as it was more than 80% committed.

One97 posted Rs 3,959.6 crore net loss in FY19 against Rs 1,490 crore a year earlier, according to details the company shared with investors, ET had reported in September. Its standalone revenue rose marginally to Rs 3,319 crore from Rs 3,229 crore in FY18.

Deep Nishar, senior managing partner at Softbank Vision Fund, told ET last week that it has asked portfolio companies, including the ones in India, to aim at profits, and stop "chasing growth for the sake of growth". This is a significant shift for SoftBank, which has ploughed a slug of capital from its Vision Fund globally across startups with high cash burn.