India’s largest IPO process is gaining steam; Paytm has called for an extraordinary general meeting (EGM) to get shareholder approval on various steps and fresh fund raise of Rs 12000 crore. Paytm is looking for a PMC or Professionally Managed Company status by declassifying Vijay Shekhar Sharma’s promoter status and highlighted the plan for a pre-IPO placement option. This paves the way for some critical Sebi approvals required for PayTM to reach its goal of a listed entity on stock exchanges.
VSS’ Declassification As Promoter Vijay Shekhar Sharma does not own the required 20 percent stake as per Sebi norms to be a promoter and the company has chosen to look for his declassification from the promoter tag. Sebi approval will be required for the company to get the PMC status. There are a few aspects critical for Paytm to meet the PMC eligibility criteria. Under this norm no single entity can own 25 percent or above in the company.Alibaba & Ant Group Shareholding In Paytm Paytm’s single largest shareholder Ant Group with close to 30 percent stake in the company is listed on Hong Kong Stock Exchange with Alibaba holding 33 percent in Ant Group. Alibaba & Ant Group together hold 37 percent stake in Paytm. A lot will depend on how the market regulator views this investment in Paytm at the time of approving the DRHP or the Draft Red Herring Prospectus, single entity or Alibaba & Ant Group as separate entities.A source said, “Alibaba and Ant Group do not have a voting pact and that will be the biggest pitch by Paytm to position them as separate entities.” If this passes the muster of Sebi then Ant Group will require to sell down about 5 percent stake in pre-IPO and IPO process and comply with the below 25 percent stake norm. PayTM’s EGM agenda has incorporated the option of a pre-IPO placement.Question arises if the market regulator views the two as a combined entity. From 37 percent, bringing the holding down to below 25 percent will be a daunting task. It will also depend on the demand for the shares.A market source said, “At a lower valuation the dilution can be larger but still if Paytm needs to raise fresh funding for the company via IPO and other shareholders may also want to reduce their stake during the IPO process then such a large stake sale by Alibaba & Ant may look difficult.”Other Solutions In many such instances in the past, the companies with promoter shareholding lower than the required 20 percent threshold have taken the route of other shareholders contributing their shareholding to join the promoter group. This is eligible in certain situations with specific requirements.An expert pointed out, “Not many investors want this as they also get the promoter tag and have to comply with the lock-in period as well as follow detailed compliance and disclosures which can be cumbersome.”This is not the route chosen by Paytm and they have decided to go with a PMC status, subject to the approval of the shareholders and the market regulator Sebi.An email query sent by Moneycontrol to Paytm on this aspect did not receive a response.Discover the latest Business News, Sensex, and Nifty updates. Obtain Personal Finance insights, tax queries, and expert opinions on Moneycontrol or download the Moneycontrol App to stay updated!
Find the best of Al News in one place, specially curated for you every weekend.
Stay on top of the latest tech trends and biggest startup news.
