Softbank May Invest Whopping $3 Bn in Paytm Mall, Thanks To Flipkart

After selling its significant minority stake in Flipkart to Walmart, Japenese internet giant SoftBank has held early discussions to invest more in Paytm Mall, an online and mobile marketplace and a subsidiary of One97 Communications' Paytm brand, which also counts Chinese online commerce giant Alibaba as its investor.

Just last month, PayTM Mall has raised $450 million (~ ₹3,000 crore) in a financing round led by SoftBank along with participation from Alibaba. With that funding, Softbank took 21% stake in Paytm Mall.

Now, as a matter of fact, Softbank could now invest more in Paytm Mall as post Walmart-Flipkart deal the Japanese firm could now set itself free from a clause in its agreement with Flipkart that restricts it from investing more than $500 million in Paytm Mall until 2020. So now, Softbank has held talks to invest as much as $3 billion in the Paytm Mall, reported Economic Times, citing a unknown person privy to this development.

However, in a catch of this speculation, Softbank can invest in Paytm Mall only if it finalized its exit from Flipkart. Notably, if SoftBank sells its 22.3% stake in Flipkart to Walmart now or any time before August 2019 then according to India's capital gain tax law it may have to give 40% (of profit) as short-term capital gain tax to the Indian taxman, which a massive $600 million.

SoftBank is undecided on selling its Flipkart shares because of tax implications and also because it sees a further increase in valuation for Flipkart.

SoftBank Vision Fund invested about $2.5 billion in Flipkart in August last year after a failed attempt to orchestrate a merger with Snapdeal, which was its first bet in the Indian online retail space in 2014.

To lower its tax liability from 40% to 10%, it would need to hold the shares in Flipkart till August 2019 at the very least, which doesn't look a plausible situation after, at least for now.

The Japanese company had invested about $900 million in Snapdeal in a hope that the home grown e-tailer would be able to challenge Flipkart’s market leadership, but saw the company slip to a distant third behind Amazon India by 2016.

Speaking about PayTM mall, the online marketplace, which primarily on its online-to-offline (O2O) model, had a market share of about 5.6% in 2017, its first full year of operations, with gross merchandise volume, or gross sales, of about $1 billion, according to Forrester Research. Flipkart Group, including online fashion retailers Myntra and Jabong, had a combined market share of 39.1%, and Amazon India, 31.1%.

Led by Vijay Shekhar Sharma, Paytm Mall has been quietly encroaching the Indian e-commerce market, replacing Snapdeal as the third-largest player after Flipkart and Amazon India. The company ended fiscal year 2017-18 with annualized GMV of $3 billion and is targeting an ambitious $10 billion in annualized GMV by the end of this fiscal year.

Via - Madhav Chanchani @Economic Times