Alibaba to invests in M-com player Paytm

One97 Communications Ltd who has their headquarters at Noida are in talks with interested VCs & investors to raise funds, to accelerate its flagship virtual wallet property Paytm, an e-commerce payment platform which consumers can access through mobile apps. Paytm claims to have 20 million registered users.

*China’s Alibaba Group Holding and its unit Alipay are in advanced talks to buy a stake for about $575 million in One97. This, plus $60 million more from existing lead investor SAIF Partners would value One97 at around $1.5 billion pre-money or just over $2 billion, post-money. It makes One97 the second most valued internet related firm in India, after Flipkart.

Snapdeal was valued lower than this in the last funding round led by SoftBank. Even the listed firms Just Dial and MakeMyTrip are both valued under $1.7 billion.

SAIF Partners will still continue to be the largest shareholder, but their holdings will decrease to under 40 percent.

Alibaba Group would hold around 30-38 per cent with the firm-head, Vijay Shekhar Sharma’s stake, being diluted to 22 per cent worth around $450 million. Intel Capital and SAP Ventures are other small investors as per their website. One97 zeroed in on Alibaba Group as the new investor after negotiating with various possible suitors including Singapore’s state-owned investment firm Temasek among others. It had signed a term-sheet for investment with Temasek but eventually decided to go ahead with a deal with Alibaba.

It is likely to finalise the deal this month itself. It would also mark a fresh round of funding for the firm after almost three-and-a-half years.

It will be Alibaba’s first significant investment in the country’s rapidly growing online business segment since last September when it saw through its mega $25 billion public float on NYSE, the world’s largest ever. India is one of the nine countries where Alibaba’s B2B marketplace is present. Apart from China and India it is also present in the US, Japan, Malaysia, Thailand, South Korea, Turkey, Taiwan and Vietnam. Its B2C ventures Taobao among others are presently only in home country China.

The investment comes around two months after Jack Ma visited India as part of a Chinese business delegation and said he is looking to invest more in the country.

It would also mark the second such significant strategic investment in India from a global e-commerce major. eBay has already invested in Snapdeal (*Snapdeal scenario before and after funding).

Citibank & Goldman Sachs were the financial advisors to One97 in the fundraise with Amarchand & Mangaldas & Suresh A Shroff & Co being the legal advisor, it is learnt.

One97 Communications, which was primarily a mobile value added service provider, is now better known for running the digital goods and services marketplace Paytm, which had initially started as a mobile and DTH recharge platform.

Previous media reports suggested that it was in talks with Japan’s SoftBank, Google Capital and Atlantis Capital among others for the new funding.

One97 Communications after being founded in 2000 is a leading mobile-internet company in India that offers digital goods & services to its mobile consumers under the Paytm brand. They also provide mobile advertising, marketing and payments for merchants. In addition, it has a partnership with existing lead investor SAIF Partners where it invests in early stage mobile internet startups through One97 Mobility Fund.

The company had previously raised funding from Silicon Valley Bank, SAIF Partners and Intel Capital , having raised around $30 million spread over three-four rounds.

Back in 2010, One97 had also filed to go public, where it sought to raise Rs 120 crore. But it had decided to shelve the proposed domestic IPO plan and decided to rope in a new private investor.

The fresh investment will be used to expand Paytm services and will be used to dominate the online payment business that is expected to grow rapidly in the next few years in India.

*All information in reference to the Alibaba deal is based on research as talks on the deal have been confidential.

Foreign investors including Japan’s SoftBank and Temasek Holdings have invested billions of dollars in Indian e-commerce firms. Global investors are betting on medium to long term growth of this market as more people make transactions online.