Swiss Re is picking up a 23% stake.
Sharma and two of his holding companies — VSS Holdco and VSS Networks — together will own close to 66% in Paytm Insuretech, according to
Paytm’s red herring prospectus and people briefed on the matter. Paytm parent One97 Communications’ shareholding in the insurance arm will come down to a little over 11%. Sources aware of the matter said One97 Communications has also cancelled an approved resolution of lending around $100 million to Sharma for the insurance deal. He will finance the deal on his own, they said.
Sharma is expected to finance his stake purchase in the insurance unit by selling some of his shares in the Paytm IPO (as part of the offer for sale component). He is also taking a loan from banks to close the deal, which is subject to regulatory approval.
The 43-year-old, who is also managing director and chief executive of Paytm, owns close to 15% in the company. He will sell shares worth over Rs 402 crore in the IPO, according to the RHP. With this, Sharma will have majority control in the insurance unit, which is valued at around $500-$550 million based on Swiss Re‘s investment for a 23% stake.
Last year, when it
announced the deal to acquire Raheja QBE, the acquiring entity was QorQl (now renamed Paytm Insuretech) and Sharma owned 51%, with the rest by One97 Communications.
“The loan was approved by One97 Communications before Paytm filed the draft red herring prospectus (DRHP) but it has been cancelled now as Sharma is arranging it on its own. It will be available once the regulatory approval is in place,” a person briefed on the matter said.
Paytm has a call option on Sharma’s stake in the insurance business, which is being seen as a key part of the company’s efforts to establish itself as a financial services group. “There is a thinking that Paytm Insuretech would be a unicorn (firms valued at $1 billion or more) in the near future as it scales the insurance business. It is already at over $500 million,” another person added.
A spokesperson for Paytm declined to comment on the matter.
Once the capital infusion happens, VSS Holdco and VSS Networks will together have 54.48% in Paytm Insuretech, while Sharma will have 11.49% and Paytm 11.03%.
According to the announcement made by Paytm on Wednesday, Swiss Re is making an upfront investment of Rs 397 crore. The rest of the money will come in tranches depending on certain business milestones.
On July 29, ET reported that Sharma
was looking at a joint venture for the general insurance business and that the insurance regulator was in favour of a more diversified ownership structure for a general insurance entity.
Even though Paytm’s parent firm is incorporated in India, it is treated as a foreign company by financial regulators, since a majority of its investors are foreign entities. This will remain the same even after its listing.
Paytm has an insurance broking licence through a wholly owned subsidiary, Paytm Insurance Broking. Foreign direct investment (FDI) in insurance is limited at 74%, but overseas investors can own 100% of broking businesses.