Alibaba buys 40% stake at Paytm

From 25% to 40%! Well, that’s a giant leap. And with an aim to be a major player in India’s ecommerce, China’s Alibaba group is keeping no stones unturned. Having increased the stake in India e-tailer Paytm, Alibaba has strengthened its foothold.

As per a news report by The Economic Times, Alibaba, which first bought stake at Paytm early this year, is negotiating to invest over $600 million (Rs 4,000 crore) to pick up a 20 per cent additional stake.

The fresh investment, which subsumes an outstanding tranche of the previous transaction under which Alibaba Group was to have pumped in another $375 million, will see Paytm being valued at $3.7 billion (Rs 23,600 crore) on a post money basis, a 270 % increase on the $1-billion valuation in the previous funding round, once again underlining the red-hot nature of India's ecommerce sector. Valuations have been soaring in this space, best exemplified by sector leader Flipkart, which raised money in May last year at a valuation of $1 billion and is now in the market to raise fresh funds at a target value of $16 billion.

"Paytm is expected to be Alibaba's ecommerce play in India. The plan is to create an ecosystem through companies that have large consumer touchpoints," source familiar with the deal tol d the ET, adding that the fresh funds would be used to expand operations.

The deal is expected to catapult Paytm into the big league of Internet marketplaces alongside Flipkart, Snapdeal and Amazon India, with its backing by Alibaba, the $200-billion behemoth, giving it both expertise and staying power in an intensely competitive business. The financial contours of the transaction being negotiated could see existing investor Saif Partners dilute its equity to 32 per cent from 37 per cent while Paytm's founder and Chairman & Managing Director Vijay Shekhar Sharma could reduce his shareholding to 21-22 per cent from 27 per cent now, the source said.

Alibaba Group with this investment will become the biggest shareholder in the company, although Vijay Shekhar Sharma, 37, who founded One97 that owns Paytm will still own more than what his founder peers in rivals Flipkart and Snapdeal own in their firms. Representatives of the Alibaba Group and Paytm declined to comment while an emailed query to Saif seeking its response did not elicit any response.

"As a matter of company policy, we decline to comment on market rumours and speculation," an Alibaba Group spokesperson told the ET in response to a query seeking confirmation. "We decline to comment on market speculations," a spokesperson of Ant Financial, a financial arm of Alibaba told the ET. Paytm and One97 founder Vijay Shekhar Sharma also declined to comment.


Alibaba’s vision is clear. In India, Alibaba wants to create an ecosystem of mobile devices, operating systems, electronic payment solution and services such as entertainment and commerce on top of the ecosystem. To that end, the company is in talks to invest about $700 million in mobile phone maker Micromax, ET reported on June 25. The handset vendor in turn is looking to invest up to $400 million to buy into startups, creating a bouquet of services for its buyers and at the same time adding to Alibaba's ecosystem. Micromax has already picked up minority stake in Bengaluru-based health and fitness company 'HealthifyMe' in May, and is looking to make nearly 20 such investments this year.