Alibaba Group Holding Ltd In Talks To Invest Another $600M In Paytm

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Alibaba is close to pouring in another $600 million for 20% stake in Indian firm One97 Communications, which owns and operates the rapidly-growing mobile commerce platform Paytm. In February, Alibaba’s financial arm Ant Financial picked a 25% stake in Paytm. If the deal goes through, Alibaba will own 40% stake in One97, emerging as the largest stakeholder in the Indian startup, two sources familiar with the negotiations told Reuters.

Alibaba values Paytm at $4 billion

The latest funding round would value Paytm at close to $4 billion on a post money basis. An inside source told The Economic Times that Paytm will be Alibaba’s play in the fiercely competitive Indian e-commerce market. The Chinese giant plans to create an ecosystem through investments in companies that have large consumer footprints. Alibaba is simultaneously negotiating to invest over $600 million in India’s largest smartphone maker Micromax.

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This time Alibaba will directly invest in Paytm, unlike the past funding round when it picked stake through Ant Financial. Alibaba’s backing and expertise will put Paytm in the big league of Indian e-commerce players. Flipkart remains the clear leader in the Indian market with its GMV approximately three times higher than that of its closest rival Snapdeal. The entry of Amazon has further intensified the competition.

Alibaba plans to create an ecosystem in India

Alibaba’s cash infusion will see existing investors diluting their equity. Ant Financial’s stake will be diluted from 25% to 20%, while SAIF Partners’ equity will shrink from 37% to about 32%. One97 Communications founder and CEO Vijay Shekhar Sharma’s holding will be diluted from 27% to approximately 22%. Paytm is on track to clock GMV of $3 billion in 2015.

Last month, Paytm announced that over 100,000 sellers from Alibaba’s AliExpress platform would start selling in India via Paytm from August. Sources told ET that Alibaba plans to create an ecosystem of smartphones, operating systems, e-commerce platforms, and payment services in India. Morgan Stanley estimates that Indian e-commerce market will grow to $137 billion by 2020.

Alibaba shares jumped 1.48% to $82.34 at 11:20 AM EDT on Tuesday.