One97 Communications recently pledged all of Paytm’s current assets in order to be able to borrow 1,400 Crore from banks. Paytm and ICICI bank had recently struck a deal in which all of One97 Communications assets (including mutual funds) were hypothecated in order to increase Paytm’s capacity to borrow more funds from the bank. These assets, worth 7,085 Crore INR, had boosted their borrowing capacity to 400 Crore INR. But, it seems, as though that was not enough. Now, Vijay Shekhar Sharma has pledged every single asset that Paytm owns in order to borrow 1,400 Crore INR. Earlier reported by LiveMint.
Why does Paytm need to borrow so much capital?
Markets and banks are currently unwilling to lend money to start-ups and fintech companies. This has led to tight liquidity conditions for many companies. The fact that Paytm can now borrow this much money means that they will be able to secure capital for their everyday operations amid these conditions.
When asked about this, a person close to the deal said “One97 Communications has clear goals. Several attractive deals are on the table and even if there is a difficulty to get an equity buyer due to the cost of stake in a large-scale start-up such as One97, the company’s plans should not suffer due to the shortage of working capital limits,”
Paytm also plans to fuel its online to offline retail businesses and it may require the extra capital to facilitate the same. Furthermore, there are also rumors that Paytm plans to expand its operations overseas. The same was echoed during the World Economic Forum in Davos, during which Madhur Deora, the CFO of One97 Communications, said that the company is planning to enter a developed market.
While they have not decided which market to enter in the digital payments space, they have already advanced to a few other markets abroad with different offerings.
What has Paytm been up to?
In October 2018, Paytm launched PayPay, which is a barcode scanning payments app, in Japan. This was launched as a part of a joint venture with Softbank and Yahoo Japan. Paytm also recently acquired NightStay for 142 Crore INR and is now trying to get into the travel and tourism sector. NightStay offers last minute deals to travelers. In order to facilitate the growth of their new avenue, Paytm has already tied up with 5,000 different hotels. These hotels are spread across the budget, business, and luxury segments of hotels.
However, having said all this Paytm is suffering consistent losses in its online retail verticals. Paytm Mall, which is its online retail business, sunk the brand’s finances quite a bit. They suffered a loss of 1,174 Crore INR and only garnered revenue of 774 Crore INR. As a result, One97 Communications total losses in 2018 added up to 1604.34 Crore INR. This is almost double the losses it incurred the previous year – 899.54 Crore INR.
It is still the market leader when it comes to digital payments.