[Update] Ant Financial and Alibaba exit Paytm Mall for $5.3 Mn

As Paytm Mall joins the government-backed e-commerce platform, the Open Network for Digital Commerce or ONDC, the firm sheds a significant chunk of its capital.

The company announced yesterday that it will be joining the ONDC, marking a departure from traditional physical goods e-commerce. According to the company’s statement, it will explore opportunities in the export business.

Paytm Mall also said that two of its key investors: Alibaba and Ant Financial have exited the company. While they didn’t provide details of the exit, Entrackr has reviewed a notice sent by Paytm Mall to all shareholders to hold an EGM on May 23 2022.

As per the notice, shareholders will be voting to pass a special resolution to reduce the share capital of the business. The company will bring down its share capital from 21.27 lakh equity shares to 12.06 lakh shares of Rs 10 each by cancelling and extinguishing the shares held by Alibaba and Ant Financial.

Alibaba would be exiting with over $3.5 million while Ant Group would be exiting with over $1.8 million and both will be writing off their investments, as per the resolution. Paytm Mall will be paying back these investors at the share price of Rs 459 per share. This marks a major haircut in its valuation as compared to its peak when the company raised a round led by eBay in July 2019. Below is the shareholding pattern of Paytm Mall right before the exit of the aforementioned investors:

At present, Ant controls a 14.98% stake in Paytm Mall while Alibaba holds 28.43%. As per Fintrackr’s estimates, Ant and Alibaba’s holdings in Paytm Mall were valued at around $483 Million and $684 Million respectively when the company was priced around $3 Billion. It’s worth noting that SoftBank, Elevation Capital (formerly SAIF Partners), eBay and other investors will continue to hold their respective stakes in the company.

Notably, Paytm Mall isn’t a subsidiary of One97 Communications Limited, but has been licensed to use the Paytm brand, and run on the Paytm app.

Responding to queries sent by Entrackr, a Paytm spokesperson said, “We are focused on our transition to build a sustainable business in partnership with ONDC and are excited about the future of e-commerce in India. As part of the shift in the business direction of the company, PEPL also saw the exit of  early investors. The exit price of any investor(s) in the company via capital reduction process is not reflective of the valuation of the company and neither does the exit have any link to any FDI laws. One simple metric is to consider that our cash balance itself is significantly higher than the quoted number in media reports, which establishes that the suggested low Fair Market Valuation is completely inaccurate.”

The notice to shareholders further mentions Paytm Mall’s operating losses during the 2019-2022 period and how the sector continues to be highly competitive, marked by the presence of several large competitors. Against this backdrop, Ant and Alibaba have expressed their desire to exit their investments in the company. “The said reduction shall not cause any prejudice to the shareholders and creditors of the company,” reads the notice.

For the year ending March 2021, Paytm Mall’s revenue shrank by 43.5% to Rs 277.4 crore from Rs 491.4 crore in FY20. Despite a significant reduction in scale, the firm didn’t manage to control losses which rose by 5.2% to Rs 503.8 crore in FY21 from Rs 478.9 crore in FY20.

As for the new move, the ONDC will allow Paytm (and other players both offline and online) to ‘unbundle’ different aspects of e-commerce businesses—like allowing one firm to list the product of a seller, another to actually process the seller’s order, and yet another to manage the logistics. At the moment, it’s not clear what Paytm Mall’s export-focused business model under ONDC will look like after this transition. “Paytm E-commerce Private Limited (PEPL), the parent entity of Paytm Mall, announced that it will pivot to Open Network for Digital Commerce (ONDC) as its primary focus and explore opportunities in exports business in place of traditional physical goods e-commerce,” the company said in a press statement.

Update: We have changed the headline and updated details regarding Paytm Mall’s valuation as the company reached out clarifying that the actual FMV of each share is different from Rs 459 per share both the investors would be receiving for extinguishing their holdings. We will update the valuation of the company if and when it files the valuation report along with its filings with the RoC.