After selling its significant minority stake in Flipkart to Walmart, Japenese internet giant SoftBank has held early discussions to invest more in Paytm Mall, an online and mobile marketplace and a subsidiary of One97 Communications’ Paytm brand, which also counts Chinese online commerce giant Alibaba as its investor.
Just last month, PayTM Mall has raised $450 million (~ ₹3,000 crore) in a financing round led by SoftBank along with participation from Alibaba. With that funding, Softbank took 21% stake in Paytm Mall.
Now, as a matter of fact, Softbank could now invest more in Paytm Mall as post Walmart-Flipkart deal the Japanese firm could now set itself free from a clause in its agreement with Flipkart that restricts it from investing more than $500 million in Paytm Mall until 2020. So now, Softbank has held talks to invest as much as $3 billion in the Paytm Mall, reported Economic Times, citing a unknown person privy to this development.
However, in a catch of this speculation, Softbank can invest in Paytm Mall only if it finalized its exit from Flipkart. Notably, if SoftBank sells its 22.3% stake in Flipkart to Walmart now or any time before August 2019 then according to India’s capital gain tax law it may have to give 40% (of profit) as short-term capital gain tax to the Indian taxman, which a massive $600 million.
SoftBank is undecided on selling its Flipkart shares because of tax implications and also because it sees a further increase in valuation for Flipkart.
SoftBank Vision Fund invested about $2.5 billion in Flipkart in August last year after a failed attempt to orchestrate a merger with Snapdeal, which was its first bet in the Indian online retail space in 2014.
To lower its tax liability from 40% to 10%, it would need to hold the shares in Flipkart till August 2019 at the very least, which doesn’t look a plausible situation after, at least for now.
The Japanese company had invested about $900 million in Snapdeal in a hope that the home grown e-tailer would be able to challenge Flipkart’s market leadership, but saw the company slip to a distant third behind Amazon India by 2016.
Speaking about PayTM mall, the online marketplace, which primarily on its online-to-offline (O2O) model, had a market share of about 5.6% in 2017, its first full year of operations, with gross merchandise volume, or gross sales, of about $1 billion, according to Forrester Research. Flipkart Group, including online fashion retailers Myntra and Jabong, had a combined market share of 39.1%, and Amazon India, 31.1%.
Led by Vijay Shekhar Sharma, Paytm Mall has been quietly encroaching the Indian e-commerce market, replacing Snapdeal as the third-largest player after Flipkart and Amazon India. The company ended fiscal year 2017-18 with annualized GMV of $3 billion and is targeting an ambitious $10 billion in annualized GMV by the end of this fiscal year.
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