Also in this letter:
Zomato IPOdelivers on UPI, too FedExinvests in Delhivery ahead of IPO
- Crypto advertising needs urgent regulation
Tomorrow in ETtech Unwrapped, our weekly newsletter: If 2021 is a signal year for Indian tech firms planning IPOs, 2020 was one for their American counterparts, with three companies making the list of the top 10 US tech IPOs of all time. We look back at the mid-pandemic public market debuts of Doordash, AirBnB and Snowflake, and find out whether they’ve lived up to the hype.
10 things you need to know about Paytm’s DRHP
Paytm founder Vijay Shekhar Sharma
Paytm parent One97 Communications Pvt. Ltd. has filed its much-awaited draft red herring prospectus (DRHP) for the biggest Indian initial public offering (IPO) in at least a decade.
The company’s IPO prospectus includes several red flags that every investor, institutional or retail, who plans to participate in the company’s public offer should know about.
1. Pre-IPO lock-in: Paytm has said it may raise up to Rs 2,000 crore in a pre-IPO round. Those who invest in this round will not be allowed to sell their shares for a year. If the pre-IPO placement is completed, the fresh issue size will be reduced by the amount raised.
2. Large investors will sell shares: Paytm’s large investors will sell parts of their holdings in the company. These are Ant Group, Alibaba, SoftBank and Elevation Capital (formerly Saif Partners). While Ant and Alibaba own a combined 38% in Paytm, SoftBank holds 18.73% and Elevation Capital has a 17.65% stake. Founder Vijay Shekhar Sharma, who owns about 15% in the firm, will also offload some of his shares.
3. Paytm will remain foreign-owned: Paytm said it currently is a “foreign-owned and controlled” company and will continue to be so after the IPO in accordance with consolidated FDI policy and foreign exchange rules and “accordingly we shall be subject to Indian foreign investment laws”.
- Significant influence: Paytm has listed all its major investors, such as SoftBank, Elevation Capital, Alibaba and Ant Group, as entities with significant influence over the firm. Last year, before Ant’s IPO plans were thwarted by Chinese government, Ant had listed Paytm in its IPO prospectus as a company over which it has significant influence.
- Brother in arms: Vijay Shekhar Sharma’s brother Ajay Shekhar Sharma is also listed as a relative who “owns interest in the voting power of the Group that gives them control or significant influence”.
4. Losses to continue: Paytm has made a net loss for the past three years and expects this to continue for the foreseeable future. In FY20 and FY21 it reported losses of Rs 2,943 crore Rs 1,704 crore, respectively.
- Why this outlook? The company said, “Because the market for our platforms, products and services is evolving, it is difficult for us to predict our future results of operations or the limits of our market opportunity.” Paytm expects its operating expenses to increase as it plans to hire additional personnel, and expand operations and infrastructure in India and abroad.
5. Sebi’s caution on Paytm Money: Paytm said the Securities and Exchange Bureau of India (Sebi) has observed “certain violations” of laws and regulations by Paytm Money on its uploading of clients’ KYC data and providing investment advice. It said the market regulator issued a written warning to Paytm Money to take corrective steps. Paytm Money submitted its response last July. The firm also suspended its advisory business on March 31, 2021, after being notified by Sebi in February about the new advisory guidelines.
Also Read: Paytm, and the art of going public
For the rest of the top 10 takeaways, click here.
Zomato IPO delivers on UPI as well
Zomato’s initial public offering (IPO), which closed on Friday, augurs well not just for India’s startup ecosystem but also its payments industry.
- This makes the startup’s open offer the most subscribed through the UPI mode since the option became available for customers in 2019, the sources said.
To put this in perspective, five IPOs launched in June received 1.95 million mandates through UPI, according to data released by the National Payments Corporation of India (NPCI). Zomato’s offer alone in July has surpassed the one-million mark.
“A high number of investors who subscribed to the Zomato IPO were below the age of 31, and comfortable using new-age online brokerages for IPO subscription where UPI is a prevalent option,” according to a source cited above.
The rule that made it possible: In 2019, India’s markets regulator—the Securities and Exchange Board of India—made it mandatory for banks to offer UPI as an option to subscribe to an IPO. The aim was to make IPO subscriptions faster for retail investors and weed out middlemen.
- According to a report by Paytm Money, 27% of people who subscribed to Zomato IPO on the first day through its platform were less than 25 years old, while 60% were less than 30 years old. According to the company, more than 22% of the first day’s applicants for the Zomato IPO were new to industry investors.
Also Read: Untested rule takes bite out of Zomato IPO
Tweet of the day
FedEx joins Delhivery’s cap table ahead of IPO
Delhivery cofounder Sahil Barua
Delhivery has brought on board the second largest logistics company in the world ahead of its initial public offering (IPO) slated for early next year.
What’s the deal? FedEx Express, a subsidiary of FedEx Corp, has invested $100 million in the homegrown logistics startup. The strategic investment, a first for the company, follows a $277 million funding round led by US-based Fidelity Investments and Singapore’s sovereign wealth fund GIC. Delhivery was valued at about $3 billion then.
More: The two companies will enter into a long-term commercial agreement under which
- FedEx Express will focus on international export-import services to and from India.
- FedEx will transfer certain assets pertaining to its domestic business in India to Delhivery.
- Delhivery will sell FedEx Express international products and services in the India market and provide pick-up and delivery services across India.
Also: Don Colleran, president and CEO of FedEx Express, will be nominated to join Delhivery’s board of directors.
IPO plans: Delhivery is targeting a public market listing next year to raise $650-$800 million.
- “The company is still working out details of the issue, including its size. However, given that we already have substantial cash on our balance sheet, we expect it to be a primary issue in the $400-500 million range,” Sahil Barua, co-founder and chief executive at Delhivery, had told us on June 7. “ Since we are an Indian firm and have a substantial part of our business here, we will list locally.”
In other funding news…
■ ADM Capital has invested $25 million in India’s largest integrated real estate platform Square Yards as growth capital. This is the third round of fundraising by the tech-driven real estate platform.
■ Bengaluru-based Slang Labs has raised $500,000 from Google Assistant and others, making it the first in-app voice assistant company to be backed by the search giant.
ETtech Deals Digest
Startups bagged bigger rounds this week compared to the previous one, with Flipkart leading the charge with a $3.6-billion fundraising.
Crypto advertising is crying for regulation
Concerns about aggressive advertising by crypto exchanges amid regulatory uncertainty have made it to the Delhi High Court.
What’s happening: Two advocates have filed a public interest litigation (PIL) against WazirX, Coinswitch Kuber, and CoinDCX, asking the markets regulator to issue guidelines and take steps against crypto exchanges advertising on television without standardised disclaimers.
- Apart from the exchanges, SEBI and the I&B ministry are named as respondents in the case. The court issued notices and gave them until August 31 to respond.
In one quote: “Without standardised disclaimers, the normal retail investor class is at risk of their interests not being protected by [Sebi],” the PIL reads, and adds that despite crypto being a far riskier asset than stocks or mutual funds, exchanges do not follow standardised guidelines for TV ads.
Why the uproar? Sample this: In a social media post for CoinDCX’s #bitcoinliyakya campaign, actor Nora Fatehi says, “Investing in bitcoin and cryptocurrencies is completely legal and safe.” Two lawyers we spoke to said crypto falls in a legal grey area in India.
- Crypto exchanges have hired celebrities and influencers, advertised during the IPL, and urged investors to buy fractions of bitcoin for as little as Rs 100. In some cases, the petition said, exchanges have promised astronomical returns.
- According to one marketing executive, top cryptocurrency exchanges were spending up to Rs 15 lakh a week on digital platforms alone at the peak of the cryptocurrency rally in March.
- These ads often lack spoken disclaimers, and written disclaimers about the asset’s volatility are barely noticeable.
The self-regulatory code enforced by exchanges that is currently in place includes voluntary compliance with anti money-laundering, combating financing of terrorism, and know your customer rules. However, it does not include any guidelines on advertising.
Today’s ETtech Top 5 newsletter was curated by Tushar Deep Singh and Zaheer Merchant in Mumbai.