Why Paytm needs a partner


Paytm, which has been trying to acquire Raheja QBE General Insurance Company for a year, is now looking for a partner for its general insurance business in the hope that this will speed up regulatory approvals.

Also in this letter:

  • Google’s take on govt’s 2% tax
  • CoinDCX in talks to raise $100-120 million
  • Delhi High Court gives Twitter last chance to comply

Paytm’s looking for a match

merger

Paytm is in the midst of sorting out its IPO, having filed its draft prospectus with markets regulator Sebi earlier this month. But that’s just one of the many moving parts the company is dealing with.

A source told us the Noida-based company is looking for a new joint-venture partner for its general insurance business.

Why? This is linked to getting regulatory clearance for an insurance deal that Paytm has been working on for almost a year. Last July, it said it was acquiring Raheja QBE General Insurance, but the deal hasn’t closed yet and is awaiting regulatory clearance.

Now, even though Paytm is based in India, it is treated as a foreign-owned company by financial regulators as the majority of its investors are based overseas. Sources told us the insurance regulator, IRDAI, is in favour of a more diversified ownership structure for a general insurance entity. Therefore, a joint venture between Paytm and a domestic player may assuage some of the regulator’s fears.

The rulebook: India allows foreign direct investment with a limit of 74% in this sector.

Quote: “Exactly how the insurance transaction should be structured has seen some back-and-forth because they (Paytm) have to take regulatory input and may have to bring in a partner who can add expertise, besides providing compliances at the One97 Communications level,” a source said.

Why does it matter? It’s critical that Paytm has all regulatory approvals in place before its public offer opens for subscription. Its payments business — e-wallet and UPI — is well established but it’s been positioning itself as a financial services company for the past year or two. If it is to achieve this, it needs the insurance business to click. It has an insurance broker licence through its subsidiary Paytm Insurance Broking, but given the scale at which the company operates, it will need its own general insurance firm to move the needle.

What’s the premium for this cover? In 2020, the company said Sharma and Paytm parent One97 Communications will buy QBE Raheja through QorQl for Rs 568 crore. Sharma owns 51% in QorQl while the rest is with One97 Communications. But there’s more.

Loan or share sale? One97 Communications’s board has approved an almost $100 million loan to two companies Sharma owns –VSS Holdings and VSS Investco. We reported in June that this loan was approved to finance the insurance purchase and offer some runway to the company once it starts operating.

Now, Sharma will also sell part of his holding in Paytm in the IPO as part of the offer for sale (OFS) component. We are told the Paytm founder may also tap the OFS proceeds to finance the Raheja QBE purchase. For now, he is keeping both options open and may not end up using the loan that’s been approved but not wired yet.

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Of the total Rs 16,600 crore Paytm is seeking to raise in the IPO, half will be through an OFS, in which the company’s biggest investors such as the Ant Group, SoftBank, Elevation Capital will also offload some of their holdings.

Ant Group set for dilution: As we said earlier, Paytm is working with many moving parts simultaneously. Chinese fintech giant Ant Group has now finalised its plan to reduce its shareholding from around 30% to under 25%. This will be done through the Paytm OFS. In theory it could sell more, but sources said there is no indication yet that it will do so.

Read our July 16 story to find out why Ant was mulling this move. Hint: regulatory clearance.


From Oct, Google will charge clients 2% more for all ads visible in India

FILE PHOTO: A sign is seen at the entrance to the Google retail store in the Chelsea neighborhood of New York City

Google has told its advertising clients that it will pass on the government’s 2% equalisation levy to them for ads that are visible in India. The levy will apply even in cases where both the buyer and the seller are based overseas.

  • The equalisation levy is a tax that India introduced in 2016 on online advertisement services by foreign companies that operated in India but did not have a physical presence here. Its scope was extended in the 2020 budget to e-commerce companies’ income beyond a prescribed threshold.

A Google spokesperson said, “From October 1, 2021, we’ll be adding a surcharge to the invoices we send to non-Indian customers whose ads are viewed in India. The surcharge is to cover part of the costs associated with complying with the Indian equalisation levy, which only impacts non-Indian advertisers. We will continue to pay all the taxes due in India and elsewhere.”

What this means: Most large digital companies have been collecting the equalisation levy from their customers in the past year. We had reported last October that Apple would pass on the tax to Indian consumers who make purchases on iTunes or the App store.

Google now plans to take this a step forward by taxing the transaction even if neither the buyer nor the seller is Indian.

Tax experts said Google’s stand will further complicate matters for other multinationals that operate in India. For instance, if an Australian citizen visiting New Delhi bought something from Google’s Play Store using the hotel’s wifi, the tax would apply.

Confusing rules: India broadened the scope of its equalisation levy without clearly defining terms such as “e-commerce” or “online”, creating problems for the Indian subsidiaries of many multinationals. Companies fear all types of transactions, including hotel bookings, software purchases, and even buying certain components from overseas could attract the levy, we had written in February.

Legal experts said given the law’s wording, even enterprise resource planning systems — the internal software systems many companies use — could technically be considered an online platform and attract the tax.

Tweet of the day


CoinDCX in talks to raise $100-120 million

COINDCX

Cryptocurrency exchange platform CoinDCX is in talks to close a new financing round of $100-120 million from investors led by Facebook cofounder Eduardo Saverin’s B Capital Group, sources told us.

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Existing investors Polychain Capital and Coinbase Ventures will also participate in the round, which is expected to value the company at more than $1 billion, making it the first crypto exchange to enter India’s swelling unicorn club. The startup had raised Rs 100 crore last December from a clutch of investors.

In April, Coinswitch Kuber, another cryptocurrency exchange, raised $25 million in a Series B round from Tiger Global Management at a valuation of more than $500 million.


ETtech Done Deals

investment

■ Online auto marketplace Droom has received the first tranche of its $200-million pre-IPO funding at a valuation of $1.2 billion, making it India’s latest startup unicorn. While the firm didn’t disclose the size of the first tranche, it expects to close the $200-million primary financing in the current quarter. The company, which has been planning an IPO in the US, may change its mind and list in India, its founder told us.

■ Conversational messaging platform Gupshup has raised $240 million from Tiger Global and Fidelity in a secondary transaction ahead of a potential initial public offering (IPO) in the US next year. This comes after the firm had picked up $100 million from Tiger Global in April, bumping the company’s valuation to $1.4 billion. The funding, its first in a decade, had catapulted the company to the country’s startup unicorn club. Read our April conversation with cofounder Beerud Sheth on why the company had raised capital after many years.

unicorn

■ Mortgage finance startup Easy has announced that it has bagged $15 million as part of a Series A funding round which was led by private equity firm Xponentia Capital Partners. The round, which closed at an undisclosed valuation, saw participation of existing investors such as Harbourfront Capital, Finsight VC, RaSa Future Fund, Navida Capital AB, Helena Wasserman Eriksson and Integra Software.

■ Skincare startup Minimalist said it has landed $15 million in a Series A funding round led by Sequoia Capital India with participation from Unilever Ventures. The funds will be used to expand into global markets, and enhance infrastructure, research and development capabilities and content curation, cofounder Mohit Yadav said.

Biconomy, a blockchain transaction platform founded by Indians, has secured $9 million from investors led by Mechanism Capital and Digital Asset Capital Management. Coinbase, Bain Capital, Ledgerprime and others also participated in the round.

■ Social networking startup Flam has landed $3.5 million in seed funding. The round was led by Silicon Valley Quad and Inventus Capital Partners SV, 9Unicorns, Kwaish Ventures and a few angel investors.

Also Read:


Ola expands ESOP pool ahead of IPO

ESOP

Homegrown ride-hailing startup Ola is expanding its employee stock ownership (ESOP) pool to Rs 3,000 crore and giving employees an additional Rs 400 crore in stocks in the run-up to its initial public offering (IPO).

This comes days after private equity firm Warburg Pincus and Temasek Holdings bought shares worth $500 million from existing Ola investors of Ola in a secondary deal.

  • Early backers Tiger Global and Matrix Partners had sold a portion of their stakes along with a clutch of angels and individual investors, two sources had told us.
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Earlier this month we reported that well-funded startups – buoyed by large funding rounds, a meteoric rise in valuations and IPO-driven liquidity events – have started buying back employee stock ownership plans (Esops), giving staff an opportunity to convert paper money into cold, hard cash.

EV rush: The Bengaluru-based firm has focused on launching its electric vehicles over the past year and is set to launch its own range of electric scooters soon.

Ola Electric, which is manufacturing electric scooters at a 500-acre site in Krishnagiri, Tamil Nadu, recently signed a $100-million, 10-year debt financing agreement with Bank of Baroda to fund the first phase of the factory. It is expected to eventually have an annual capacity of 10 million vehicles.

Also Read: Ola CEO ‘strongly disagrees’ with Tesla, Hyundai on import duties


Delhi High Court gives Twitter last chance to comply

FILE PHOTO: People holding mobile phones are silhouetted against a backdrop projected with the Twitter logo in Warsaw

The Delhi High Court on Wednesday said Twitter was in “total non-compliance” of the Information Technology rules and gave it a “last opportunity” to file better affidavits showing its compliance in a week.

It said the affidavit to be filed must clearly state the details of the people it has appointed as its chief compliance officer and resident grievance officer. It also asked the company to explain why it is yet to appoint a nodal contact person, and by when it plans to do so.

Twitter’s response: Senior counsel Sajan Poovayya, representing Twitter, assured the court that the company would file a clearly worded and transparent affidavit.

The court was hearing a plea filed by Amit Acharya, a practising advocate in the Delhi High Court and the Supreme Court, against Twitter Inc.


Other Top Stories We Are Covering

After Flipkart, Amazon also challenges Karnataka HC order: Amazon India has also moved the Supreme Court challenging last Friday’s Karnataka High Court order, which cleared the way for the Competition Commission of India (CCI) to probe firms like the Walmart-owned Flipkart and Amazon India, a person aware of the matter said.

Bharat BillPay appoints PayU’s Noopur Chaturvedi as new CEO: Bharat Bill Payment System, NPCI’s flagship bill payments platform that was hived off into a separate subsidiary in April, has appointed former PayU and Airtel Payments Bank executive Noopur Chaturvedi as its new chief executive officer, sources told ET.

Kalaari Capital launches CXXO: Kalaari Capital has launched CXXO, an initiative as part of which it has set aside $10 million annually, to invest in startups that have women founders as key decision-makers.

Girish Mathrubootham, Manav Garg launch $85M fund: Freshworks founder Girish Mathrubootham and Eka Software founder Manav Garg, on Wednesday launched of their new venture fund ‘Together’ with a key focus on backing early-stage software products companies being built out of India or by Indian founders.


Global Picks We Are Reading

  • A record quarter by Apple, Alphabet, Microsoft gives way to growth scepticism (Bloomberg)
  • Google delays return to office, mandates vaccines (AP)
  • Here’s what’s become of Ethereum co-founder’s $1 bn India Covid crypto donation (Bloomberg)





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