Sebi examines Ant Group and Alibaba holdings in IPO-bound Paytm

Capital markets regulator Securities and Exchange Board of India (Sebi) is examining if Paytm shareholders Ant group and Alibaba—Hangzhou-headquartered Chinese conglomerates--are in compliance with listing regulations. Ahead of Paytm’s public debut, Sebi is looking at whether the two investors must be treated as separate companies or a combined entity. This is part its due diligence process.  

Ant Group, with around 30 per cent stake in Paytm, is the single largest shareholder in the fintech company headed for an initial public offer (IPO). Ant and Alibaba together hold about 37 per cent in Paytm. Ant is an affiliate of the Alibaba group and are registered as separate companies.     

To become a professionally managed company, no single entity can own more than 25 per cent in Paytm. 

“Sebi (Issue of Capital and Disclosure Requirements) rules provide for companies without promoter, also called professionally managed company, where they do not need to designate a promoter. But each issuance has different dynamics. So in this case, Alibaba and Ant group, both are being looked at for compliance issues,” said a regulatory source. 

If the market regulator views the two as a combined entity, it may impose some caveats and give a definite time frame to offload their stake to 25 per cent from the current 37 per cent. Paytm has already said that Ant group would shed its stake by 5 per cent as part of the IPO to comply with Sebi’s PMC norms. 

DUE DILIGENCE 

• Under professionally-managed company (PMC) norms, no single entity can own 25% or more in a company
• Ant Group and Alibaba together hold 37% in Paytm 
• Ant Group plans to offload 5% of its 30% stakes in Paytm 
• Sebi examination will decide payment firm’s PMC status

An email sent to Paytm remained unanswered. 

The firm has also opted for declassification of Paytm founder and CEO Vijay Shekhar Sharma as a promoter. 

In July, Paytm’s parent firm One97 Communications had filed draft documents for an initial public offering (IPO) to raise Rs 16,600 crore, surpassing Coal India’s Rs 15,000-crore IPO over a decade ago. 

The regulator is also vetting how and where the control lies as Ant group will continue to hold a significant stake post listing. 

The regulator is also learnt to have sought clarity from the Reserve Bank of India (RBI) on the proposed listing in relation to foreign exchange regulations. This may be useful in case of fresh round of investments requiring government approvals. 

Paytm is among the country’s most valuable fintech firms with a market capitalization of $16 billion following a billion-dollar funding round led by T Rowe Price, Discovery Capital, and D1 Capital in November 2019. In addition to these investors, the company's significant stakeholders include Ant Financial Netherlands, Alibaba Singapore, three Elevation Capital funds, SoftBank Vision Fund, and BH International Holdings.