Alibaba's Ant Financial to take a 25% stake in Paytm's parent company

In its first India investment, to also provide the aspiring payments bank with strategic and technical support

Ant Financial, an affiliate of Chinese e-commerce giant Alibaba Group Holding, would take a 25 per cent stake in Noida-based One97 Communications, which runs online payment platform Paytm, the companies said in a joint statement on Thursday.

The deal represented Ant Financial’s first investment in an Indian company, said the statement. Ant Financial, which runs Alibaba’s Alipay online payment platform, will provide Paytm “with strategic and technical support for its business”, it added.

Paytm will use the proceeds from the deal to grow its mobile payment ecosystem and boost its commerce user base. Ant Financial, which also runs Alipay Wallet, the largest mobile payment service provider in China with over 190 million users, will give Paytm strategic and technical support for its business. Alibaba, through two of its companies, is picking up a total of 40 per cent stake in One97 Communications for about $575 million, at a valuation of $1.5 billion. SAIF Partners, which already has investments in the company, will be putting in $50 million.

“With over one billion people, India’s payment market has vast untapped potential,” said Cyril Han, vice-president of Ant Financial. “As smartphone use continues to rise in India, we see great opportunity in the mobile wallet space. And Paytm, as a leader in this field, is best equipped to build a mobile payment ecosystem in the country,” he added.

Together with Ant Financial, Paytm would change the landscape of mobile payments and commerce in India, said Vijay Shekhar Sharma, founder & chief executive of One97 and Paytm.

Citi and Goldman Sachs served as financial advisors for the deal. Simpson Thacher & Bartlett LLP, Trilegal and Amarchand & Mangaldas & Suresh A Shroff & Co were legal advisors, while KPMG was diligence advisor.

Sharma had earlier told Business Standard that his equity holding in One97 Communications would come down to 22 per cent from 35 per cent. SAIF Partners, which has about 50 per cent equity in One97 Communications, will hold 33 per cent in the company after the fresh infusion of $50 million, and continue to be the single largest equity holder in Paytm. The remaining equity is held by minority shareholders, including Reliance Capital, Silicon Valley Bank and employees. These holdings will be diluted after the deal.

One97 Communications has raised $30 million from SAIF Partners, Intel Capital, Silicon Valley Bank and SAP Ventures, among others, since 2007. In 2010, the company had filed for an initial public offering but shelved the plan after receiving regulatory clearance.

Sharma had also said Paytm’s focus would be on strengthening the mobile commerce platform, where it works as a marketplace for merchants to sell products. Since its launch last year, the mobile commerce platform has built a base of about 10,000 offline and 16,000 online merchants. By the end of this year, it aims to be associated with 100,000 merchants, and plans to bring Chinese merchants on Paytm’s mobile marketplace.

Paytm also aims to increase the mobile user base from about 23 million now to 100 million by 2016. It has an annualised transaction value of $750 million, earning 1-1.5 per cent of payments as transaction fee. In the mobile commerce business, it earns transaction fees of up to five per cent.