Investment Giant Cuts Ties with Indian Fintech Leader
Softbank Vision Fund, the investment arm of Japan’s Softbank Group, has exited its holding in One97 Communications, the parent company of Indian fintech giant Paytm. The exit, which took place in the June quarter of 2024, resulted in a loss of approximately $150 million for Softbank, reflecting a challenging environment for the Indian fintech industry.
Investment Trajectory and Exit Strategy
Softbank’s investment story with Paytm began in 2017 with a total commitment of $1.5 billion across multiple tranches. Prior to Paytm’s much-anticipated IPO in 2021, Softbank held a significant stake of 18.5% in the company. Interestingly, SVF Panther, one of Softbank’s holding entities, had already exited its stake by selling it entirely during the IPO itself.
Sources familiar with the situation revealed that Softbank’s exit aligns with their pre-defined strategy of divesting within 24 months of a portfolio company’s IPO. However, these sources also clarified that the company did not anticipate incurring losses at the time of formulating the exit strategy.
Paytm’s Financial Performance: A Mixed Bag
Paytm’s current share price of ₹1,955 reflects a 9% decline compared to its IPO price of ₹2,150. This tepid performance adds to the concerns surrounding the company’s financial health. Further complicating matters, Paytm’s losses widened to ₹550 crore in the fourth quarter of FY2023-24. This can be partly attributed to a ban imposed by the Reserve Bank of India (RBI) on its associate firm, Paytm Payments Bank Ltd (PPBL).
Despite the setbacks, there are some signs of improvement. Paytm’s overall loss for the year ended March 31, 2024, narrowed to ₹1,422.4 crore compared to ₹1,776.5 crore in FY2023. This indicates the company’s efforts to streamline operations and reduce costs.
Following a Trend: Other Investor Exits
Softbank’s exit is not an isolated incident. Prominent investor Berkshire Hathaway Inc., led by Warren Buffett, also exited their Paytm stake in November 2023, selling their shares at a loss. This trend underscores the cautious approach that major investors are taking towards the Indian fintech sector.
Looking Ahead: Challenges and Opportunities
Softbank’s exit from Paytm serves as a wake-up call for the Indian fintech industry. While Paytm has shown some progress in reducing losses, its overall financial performance and its ability to navigate regulatory hurdles remain key areas of focus for investors. The company’s long-term success will depend on its ability to address these challenges and capitalize on the vast potential of the Indian digital payments market.
