Japan's SoftBank Group, one of India's largest startup investors, is expected to fully exit its fintech firm Paytm by the end of this quarter. This will mark SoftBank's third complete exit from an Indian company, following its departures from Zomato and PB Fintech, the parent company of PolicyBazaar.
Having backed over 20 Indian unicorns, SoftBank has been regularly offloading its shares in Paytm through open market operations (OMOs). With a $1.4 billion investment in Paytm, SoftBank is expected to incur losses ranging between $100 million and $150 million. However, the group has not set a specific timeline for its complete exit.
For the past ten months, SoftBank has been consistently selling Paytm shares either via OMOs or block and bulk deals on stock exchanges. As a result, the company’s stake in Paytm has dropped from 9% in June 2023 to just 1.4% by March this year. According to SoftBank’s latest earnings report, it recorded an unrealized loss of $100 million on its Paytm investment by the end of the March quarter.
When Paytm went public in November 2021 with India’s largest initial public offering (IPO), SoftBank sold shares worth ₹16.89 billion (approximately 1% stake), valued at $20 billion. Due to Securities and Exchange Board of India (SEBI) regulations, SoftBank was subject to a one-year lock-in period, which prevented further share sales immediately after the IPO.
Following Paytm’s listing, the market reevaluated the company’s value due to significant losses, causing the stock price to plummet sharply. Since then, the stock has not reached its listing price of Rs 2,150 per share.
However, as the company showed marked progress toward profitability each quarter, Paytm’s share price began to rise in 2023, hitting a 52-week high of Rs 998.30 per share in October last year. During this rally, the Japanese investor appeared to expect flat or marginal gains on their total investment in Paytm. In July 2023, SoftBank offloaded 2% of its Paytm shares, selling them at over Rs 830 per share, which allowed them to make a small profit on the transaction. This price was above SoftBank’s blended cost of Paytm shares accumulated over the years.
“There were some issues regarding regulatory compliance, but they performed quite well operationally. They grew rapidly and their decline lessened quarter on quarter,” the report states.
“SoftBank expected to make some gains or at least break even on the investment. They made huge profits in the IPO, but after the lock-in period, Paytm shares were sold at significant losses. Had Paytm’s shares risen, they might have made some gains on their final investment. However, it now seems unlikely,” the report added.
Earlier this year, the Reserve Bank of India (RBI) barred Paytm Payments Bank Limited, owned by Paytm’s parent company One97 Communications Limited, from accepting further investments due to non-compliance with KYC norms. RBI had already prohibited the payments bank from onboarding new customers since March 2022.
Paytm informed that these regulatory restrictions would lead to an estimated loss of about Rs 500 crore in annual operating income. Following RBI’s directive, Paytm’s share price plunged sharply, closing on Thursday at Rs 377.40 on the National Stock Exchange, more than a 50% decline.
In February this year, Navaneeth Gowda, CFO of SoftBank’s investment arm Vision Fund, told the media, “SoftBank has observed growing uncertainty regarding India’s regulatory environment and the license status of Paytm Payments Bank Limited.” Consequently, SoftBank regularly sold Paytm stock. “We felt it was prudent to start monetizing,” Gowda told the news agency Bloomberg.
The loss of $100-150 million in Paytm coincides with uncertainty surrounding another major Indian investment—hotel aggregator OYO. The Gurugram-based company, which was preparing for a $1 billion IPO, reportedly withdrew its listing documents last week, aiming instead for a private financing round at a valuation 70% lower than its last valuation. SoftBank is OYO’s largest shareholder, holding more than 40% of the company.
