Shares of India’s Paytm slide as SoftBank looks to sell stake worth $200m

Shares of the already-battered Paytm dropped around 10% in morning trade on the Indian bourses on Thursday, following reports that Japanese conglomerate SoftBank Group is looking to sell shares worth $200 million.

The one-year lock-in period for investors in the fintech firm, which listed on November 18 2021, will soon end.

SoftBank had invested $1.6 billion in Paytm and had partially sold stake worth $220-250 million in the initial public offering last year. As of September 30, SoftBank held a 17.45% stake in the fintech firm through SVF India Holdings (Cayman).

After the latest share sale SoftBank’s stake in Paytm is likely to fall to 12.9%, reports said. This implies SoftBank will sell a roughly 4.5% stake.

Paytm, also backed by China’s Ant Group, had raised $2.5 billion in its initial public offerings — one of India’s biggest last year. However, the company made a dismal debut following concerns over its high valuation and an uncertain path to profitability.

The value of SoftBank’s holding in Paytm has incurred losses as the stock has fallen 72% from its debut price of Rs1,950 per share. The stock was trading at Rs. 546.60 in morning trading on Thursday.

SoftBank’s stake sale was executed at Rs555.67 rupees per share, Reuters reported citing sources.

Recently, Paytm reported a net loss of Rs 5.71 billion for the September quarter, which widened from 4.73 billion rupees a year earlier, as expenses related to employee benefits and payment processing charges surged. However, the company reiterated that it would turn profitable by September 2023.

“Paytm is trading at a small fraction of its listing price. Any large offloading of shares is likely to put further pressure on the stock price,” said Bharat Birla, director at Anand Rathi Advisors, adding that the general sentiment around tech stocks with no near-term visibility of profitability is weak and “Paytm has to turn the tide on its profitability trends for the price to see any upward movement.”

Valuations of several new-age companies have taken a beating in the private market as the craze for startups wanes, possibly delaying their plans to go public.

Beauty startup Nykaa’s shares, for instance, started trading at a premium of over 82% when they listed on Nov. 10 2021 at Rs 2,054 per share, but are currently trading at Rs 177.5 per share.

Shares of PB Fintech, which operates the online insurance platform Policybazaar and credit comparison portal Paisabazaar, also debuted at Rs 1,150 on listing and are now trading at Rs 369.40 per share. Zomato, which had an issue price of Rs. 76 per share, is now trading at Rs. 69.70 per share.

Given the low-risk appetite in the Indian equity markets at present and the highly uncertain economic scenario in the medium and long term, investors are reluctant to invest in startups.

Earlier this week, SoftBank reported a $7.2 billion loss in the July-September quarter loss at its Vision Fund investment arm for a third consecutive quarter. In May, SoftBank group chairman and CEO Masayoshi Son said that the firm would scale back new investments in the face of a sell-off in tech stocks and as the firm has been grappling with declines in its portfolio companies.

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