Paytm hypothecates current assets to increase working capital loan limit to Rs 1,400 Cr

India’s most popular digital payment platform’s parent entity One97 Communications Ltd. has decided to mortgage all their current assets and mutual fund investments to procure working capital requirement.

Answering why the company took this step instead of choosing the equity route it is being said that it is because the cost of the stake for an equity investor is huge in One97.

Previously the working capital loan limit for Paytm was Rs 400 crore, but by pledging these Balance Sheet items, Paytm raised the limit to Rs 1,400 crore. One97 Communications Ltd. has entered an agreement with ICICI Bank Ltd. for the same by pleading current assets worth Rs 7,085.1 crore.

The company needed the capital for day-to-day operations and low liquidity conditions while working on newer plans and forays that are on its future roadmap.

As per a Mint report, Madhur Deora, Chief Financial Officer at Paytm had announced the company’s plans to enter one or two new developed markets. Nothing was said about nature or these markets or their launch, but it all is in an attempt to build a business that can create a scale.

Paytm had acquired NightStay around the end of January in a move suggesting a second attempt at hotel aggregation business and giving offers while booking above mediocre hotels aiming at growing travel vertical.

It has also been expanding outside India.  With the help of SoftBank and Yahoo, it had launched a barcode run payment service called PayPay in Japan last year.

Recently, Paytm had also partnered with Zomato to allow food delivery services via its platform and was seen gearing up to launch video streaming services.

Further, the loan requirements are also said to be in order to grow it’s online to offline O2O business that the company recently started to focus on after it depleted its e-commerce business almost entirely. This too was to cut on cashbacks and control losses, to move towards unit economics.

Interestingly, raising a loan more than raising an equity capital might not help with the attempt to control losses, but it will definitely act as a subtraction in tax expenditure.