by Elton Gomes
Warren Buffetts Berkshire Hathaway Inc. is all set to purchase a stake in One97 Communications Ltd, the parent of Paytm, two people familiar with the matter said, Live Mint reported.
The transaction between Buffett and Paytm was discussed at Paytm’s board meeting held a few weeks ago. Berkshire Hathaway is impressed by the scale that Paytm has been able to build in a short period of time. They realise that technology companies go through a cycle of losses before they start generating cash, a source privy to the matter said, the Economic Times reported.
Its a paradigm shift, Dinesh Arora, a partner at PricewaterhouseCoopers LLP, said. “Financial services reach only the top 10 to 20 percent of India, but technology has the potential of adding a big slice of Indias 1.3 billion people and bringing savings, credit and investments to their smartphones, Bloomberg reported.
The news of the purchase is making headlines as it would reportedly mark Buffett’s first investment in a privately-held company, thereby emphasizing the potential he sees in the Indian technology market.
The size of the investment
Though the size of the deal has not been officially finalised, reports estimate that it could be completed over the coming weeks, after which Paytm could be valued at over $10 billion.
Paytm has been in talks with Berkshire Hathaway since early February to raise around Rs 2,200 to 2,500 crore at a valuation of about $10 to 12 billion, two sources said on the condition of anonymity, Live Mint reported.
Buffett’s other investments
Earlier in 2018, Buffett proposed investing $3 billion in Uber Technologies Inc., but the talks led to nothing concrete, people knowledgeable of the matter said, as reported by Live Mint. As per the proposed agreement, Berkshire Hathaway was to provide a convertible loan to Uber, and this would have protected Buffetts investment if Uber was in financial distress.
Uber’s CEO Dara Khosrowshahi urged reducing the size of the deal to $2 billion, in an attempt to get Buffett’s support while giving him a smaller share. But the deal fell apart after neither party could come to a consensus.
In May 2018, Berkshire Hathaway confirmed that it has become Apple’s second-largest shareholder. Buffett told CNBC: “I’d love to own 100 percent” of Apple, days after he said that he might be interested in purchasing more shares in Apple. He said, “We own about 5 percent. But I know I don’t have to do a thing and probably in a couple of years we’ll own 6 percent without laying out another dollar,” as per the CNBC report.
Paytm’s expansion plans
Paytm’s digital payments subsidiary, Paytm Money, said that it would be offering mutual fund investment products at zero fees. The investment and wealth management platform, slated to launch soon, has already evinced significant interest from consumers, after more than 7.5 lakh people registered for early access.
In July, Paytm said it was planning to make an entry into Europe. But plans were still at an early stage. After gaining a sizeable amount of mobile wallet users in India, Paytm had expanded its operations in Japan via PayPay Corporation, Business Standard reported.
In an attempt to buy a 7-10 percent stake in Future Retail, Paytm Mall was looking to join hands with Google to form a consortium ad invest Rs 3,500-4,000 crore.
Elton Gomes is a staff writer at Qrius