IPO-bound Paytm may bring in an external partner for its general insurance venture, even as the digital payments company is in the process of acquiring Raheja QBE General Insurance Company, people aware of the matter said.
This may make it easier to obtain regulatory clearance, they indicated.
While Paytm announced the Raheja acquisition last year, the deal is yet to close.
Indian law on foreign ownership in the insurance sector limits foreign direct investment at 74%.
Even though Paytm is incorporated in India, it is treated as a foreign company by financial regulators as a majority of its investors are foreign.
As per the people, insurance regulator IRDAI is in favour of a more diversified ownership structure for a general insurance entity. Therefore, a joint venture by Paytm with a domestic player to set up this company may assuage some of the regulator’s fears, they said.
A Paytm spokesperson declined to comment.
Paytm owns an insurance broker license through a wholly owned subsidiary, Paytm Insurance Broking. Local rules allow foreign companies to own 100% of broking companies.
For Paytm, closing the general insurance purchase is critical to its positioning as a financial services group diversifying from being just a digital payments firm.
Founder and chief executive Vijay Shekhar Sharma, who is also selling a part of his stake through the IPO, may use part of the proceeds to finance the insurance purchase.
ET had reported in June that Paytm parent One97 Communications was issuing a loan to Sharma’s VSS Holdings for financing the insurance transaction.
The board of One97 has approved the loan proposal but the Paytm founder is keeping both options open to fund this buy, people aware of the matter said. “The structure of how exactly the insurance transaction should be has gone through some back and forth because they (Paytm) have to take regulatory input and may have to bring in a partner who can add expertise, besides provide compliances at One97 Communications level,” a person close to the matter said.
“The shareholder approval is there (on the loan) but it hasn’t been disbursed yet. There is an OFS (offer for sale) where Sharma is selling. So, there is a possibility that he may not need that loan,” this person said.
The acquisition of the general insurance venture, awaiting regulatory approval, will be routed through Paytm subsidiary QorQl where Sharma holds a 51% stake. The balance is owned by One97 Communications.
Sharma owns nearly 15% in One97 Communications.
As reported previously, Paytm is also seeking an NBFC (non-banking financial company) licence.
For now, the company is lending through partner NBFCs and banks. Paytm’s payments bank can’t lend on its own as per the regulations, so it also wants to convert itself into a small finance bank. Currently, payments banks need to operate for a minimum of five years before they can convert into a small finance bank. Paytm Payments Bank has been operational for a little over four years.
Interestingly, for both its payments bank and insurance business, a majority shareholding is with Sharma. “That’s due to the nature of the local regulations and not about foreign shareholders,” another person in the know said.
Ant To Dilute Stake Below 25%
As ET reported on July 16, China’s Ant group has finalised plans to reduce its stake in Paytm to below 25% from nearly 30% to comply with the listing regulations for professionally managed companies.
“It is a requirement that no one should own more than 25% in the company for it to be listed as a professionally managed company. Ant has agreed to come down under 25% through the OFS. In theory, they could do (sell) more but there is no indication of that,” this person added.
Of the Rs 16,600 crore that Paytm plans to raise through its IPO, 50% would go to shareholders who are selling shares, such as the Ant Group, Alibaba, SoftBank, Elevation Capital (formerly SAIF) and Sharma.
Paytm has also kept an option of a pre-IPO round of up to Rs 2,000 crore. If that happens, the new share issue size will get altered accordingly.
