Final Break: SoftBank's Paytm exit costs more than expected

SoftBank Group has officially completed its exit from Paytm by selling the Indian fintech firm's stake in Japan-based PayPay Corporation to a SoftBank Vision Fund 2 entity.

The transaction, valued at $279.2 million, severs both direct and indirect investment ties between SoftBank Group and Paytm. In the January-March quarter of 2024, SoftBank had already sold its direct stake in Paytm, taking a $544 million loss. However, the overall notional loss anticipated by SoftBank from the Paytm investment was lower. This was due to Paytm’s contributions to the establishment of PayPay, the Japanese fintech backed by SoftBank, which had initially benefited from the Indian fintech's investment.

SoftBank had anticipated a higher valuation for PayPay, estimating it at approximately $7 billion, which would have limited its net loss from the Paytm deal to around $100-150 million. However, the Paytm-PayPay transaction valued the Japanese fintech at $3.9 billion. While secondary transactions often occur at a discount, this valuation represented a steeper markdown than the typical 15-20%.

Paytm announced the transaction on Saturday, confirming that its wholly-owned subsidiary, One97 Communications Singapore Private Limited (Paytm Singapore), sold 3.95% of PayPay Corporation.

These Stock Acquisition Rights (SARs) were originally acquired in September 2020 and were sold at a valuation of JPY 1.06 trillion for PayPay.

SoftBank held about 18.5% of Paytm before its IPO in 2021, with a 17.3% stake through SVF India Holdings (Cayman) Ltd and an additional 1.2% via SVF Panther (Cayman) Ltd.

During the IPO, SVF Panther divested its entire stake, raising Rs 1,689 crore (around $225 million).

Following the IPO, SoftBank had announced its intention to fully exit Paytm within 24 months after a regulatory lock-in period.

SoftBank acquired Paytm shares at an average cost of Rs 800 per share. Despite being listed at Rs 1,955, the stock debuted 9% lower than its issue price of Rs 2,150 and has since struggled to match that valuation.

The stock's performance deteriorated further after the Reserve Bank of India (RBI) imposed restrictions on Paytm Payments Bank Ltd (PPBL), driving the share price to a record low of Rs 310 on May 9.

The Paytm stock has since marked a recovery from January's regulatory crackdown. The stock climbed past its pre-restriction level of Rs 761.20 erasing losses triggered by the RBI's sanctions.

The stock last traded at Rs 975.35, at the market closing time on Friday.

(The story was later updated)