10 key takeaways from Paytm’s IPO filing

Paytm has submitted its highly anticipated Red Herring Prospect Project (DRHP) for an initial public offering (IPO) valued at Rs 16,600 billion.

The prospectus for the company’s IPO contains several cautionary statements that any investor, institutional or private investor planning to participate in the company’s public offering, should be aware of, including disputes with regulators and investors, a relative of the founder who has a significant influence has filed criminal and tax proceedings against Paytm and its directors about the company.

1. PreIPO Lockin: Paytm has said it can raise up to Rs 2,000 crore in a PreIPO round. Anyone who invests in this round cannot sell their shares for a year. the issue volume is reduced by the amount withdrawn.

2. Big Investors Will Sell Stocks: Big Paytm investors will sell parts of their shares in the company. These are the Ant Group, Alibaba, SoftBank and Elevation Capital (formerly Saif Partners). While Ant and Alibaba together own 38% of Paytm. , SoftBank owns 18.73% and Elevation Capital owns 17.65%. Paytm founder Vijay Shekhar Sharma, who owns around 15% of the company, will also sell part of his shares.

3. Paytm Will Remain Foreign-Owned: Paytm said it is currently a “foreign-owned and controlled” corporation and will continue to do so after the IPO in accordance with consolidated FDI policy and foreign exchange regulations and “we will accordingly.” Indian Foreign Investment Laws. “
Significant Influence: Paytm has listed all of its major investors such as SoftBank, Elevation Capital, Alibaba, and Ant Group as having significant influence over the company. Last year, before the Chinese government thwarted Ant’s IPO plans, “Ant listed Paytm in his IPO prospectus as a company he has significant influence over.
Brother in arms: Vijay Shekhar Sharma’s brother, Ajay Shekhar Sharma, will also listed as a relative who “has an interest in the voting rights of. the group that gives them significant control or influence.”

4. Losses Will Continue: Paytm has posted a net loss over the past three years and expects it to continue for the foreseeable future. Losses of Rs 2,943 crore and Rs 1,704 crore were reported in Fiscal Years 20 and 21, respectively.

5. SEBI Warning Regarding Paytm Money: Paytm said the Bureau of Securities and Exchange of India (SEBI) has “certain violations” of laws and regulations by Paytm Money in uploading customer KYC information and providing investment advice observed. The Market Authority has issued Paytm Money a written reminder to take corrective action. Paytm Money submitted its response last July.

The law firm also ceased its consulting business as of March 31, 2021 after being informed by SEBI of the new consulting guidelines in February.

6. Tour with Insurance Regulators: Paytm, a foreign-owned company, bought a 100% stake in its insurance broker subsidiary between November 2019 and February 2020 after the government announced that overseas companies could increase their stake in insurance intermediaries to 49% . However, the RBI flagged this transaction under the Foreign Exchange Management Act (FEMA), which wasn’t updated to include the new FDI cap until April 2020. Paytm has requested retrospective government approval pending incremental review.

7. Paytm NUE could encounter obstacles: Paytm confirmed that it has applied for a new Umbrella Entity License (NUE) with RBI to establish a new retail payment authority. This will be done through a group subsidiary, Foster Payments Network Ltd., as a consortium of nine companies.

However, a rule introduced by the RBI in June 2021 prohibits any investor in a country that does not comply with the rules of the Financial Action Task Force (FATF) from owning more than 20% of the voting rights in a system operator payment (PSO). .

FAFT, the global watchdog against money laundering and terrorist financing.Countries that do not obey the rules include Mauritius, Uganda, and the Cayman Islands.
That rule could hinder future investments in the NUE, Paytm said.

8. Paytm Loan to Founders for Insurance Purchase – The company said it proposed to VSS Holdings Pvt. Ltd. Provide a loan of nearly Rs 492 billion in the form of optional convertible bonds (OCD). by Paytm founder Vijay Shekhar Sharma.

“The funds, when infused, will be used to invest in PIT (which in turn would put more money into the RQBE transaction). Our company would have the option of converting these OCDs into shares (subject to regulatory approvals) of VSS Holdco “, he said. There is currently no assurance that this transaction will take place, Paytm added. We reported on the loan agreement in June.

9. Ratan Tata, Warren Buffett to Sell Some Stock: Ant Group, Alibaba and Elevation Capital aren’t the only high profile Paytm investors looking to sell some of their stocks.

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