Paytm founder Vijay Shekhar Sharma, who will be selling ₹402.65 crore worth of shares in Paytm’s offer for sale (OFS), is likely to plough back a significant portion of the proceeds into the company’s general insurance arm Paytm Insurtech (PIT), a senior company executive told Mint on Thursday.
Paytm owner One97 Communications Ltd. (OCL), which is prepping for an IPO starting November 8, had earlier planned to lend ₹743 crore to founder Vijay Shekhar Sharma-owned investment entities–VSS Investco and VSS Holdings. As a part of the transaction, Paytm was expected to buy ₹491.93 crore worth of optionally convertible debentures to be sold by VSS Holdings Pvt. Ltd, in which Sharma is a director.
The money was to be used to fund the Raheja QBE acquisition and invest in Paytm’s general insurance business, Paytm Insuretech Pvt. Ltd (PIT), according to Madhur Deora, president and group chief financial officer of One97 Communications Ltd.
That plan has been abandoned now. Instead, Sharma may use the money he makes from the OFS to fund PIT. The investment into PIT will be made through Sharma’s investment vehicles, Deora explained.
“We are not doing the loan we had contemplated from One97 Communications to VSS Holdings.In our RHP (red herring prospectus) we have disclosed that we are effectively avoiding shareholder approval on the loan. The original reason for the loan was for Vijay to invest in the insurance company that he had acquired (Raheja QBE) through Paytm Insurtech. So, Vijay is actually arranging separate funding for that (acquisition),” Deora told Mint in an interaction on Thursday.
“We had certain timelines to meet on the buy plans (of Raheja QBE). But now that we have more time, the loan has been scrapped […] A vast majority of the offer for sale done by Vijay will be going to fund Paytm Insurtech,” added Deora.
According to Deora, PIT has signed the agreement to acquire Raheja QBE, in which Sharma and OCL are shareholders.
In July, last year, OCL along with founder Sharma entered into an agreement to completely buyout Mumbai-based private sector general insurer Raheja QBE for ₹568 crores, marking its entry into the insurance manufacturing segment.
The deal is still subject to approvals by the country’s insurance regulator Insurance Regulatory and Development Authority of India (IRDAI).
“We had told this to everyone. There was a buy obligation with a timeline (for the deal). So, within the timeline, I was chipping in with a loan, so they (Raheja QBE) gets paid, which will effectively go to Paytm whenever the permissions are allowed,” said Sharma to Mint explaining the matter.
The news around Sharma’s investment in PIT comes close on the heels of Paytm announcing a ₹920 crore ($127 million) fund raise from Switzerland-based reinsurance company Swiss Re on Wednesday for a 23% stake in its general insurance entity.
With the launch of Paytm Insurtech, OCL now plans to manufacture general insurance products for its consumers, apart from being a distributor and broker of insurance, through Paytm Life Insurance Corporation Ltd. and Paytm General Insurance Corporation Ltd.
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