Paytm may cut value of Freecharge by 80%

Posted May 13, 2017

Valuation has been a roadblock for the proposed merger of Snapdeal with the country's largest e-commerce player Flipkart.

Besides Snapdeal and Ola, SoftBank is also an investor in hotel booking platform Oyo Rooms, e-grocer Grofers, and Housing (which it sold to PropTiger last year).

In other news, SoftBank has got a nod from co-investor Nexus Venture Partners (NVP) for sale of Snapdeal to India's largest e-commerce firm, Flipkart, reports PTI. But things may change now, said analysts.

Significantly, SoftBank is in final stages of closing an investment deal with Paytm, which could be one of the biggest funding rounds for an Indian startup at around $1.4 billion, TOI had reported earlier. "This situation caused a material decrease in net asset value of Starfish as of March 31, 2017, and therefore SBG impaired the carrying amount of its shares in the company to the amount equivalent to its net asset value", the statement says.

With Snapdeal's dismal showing in the last few quarters, SoftBank's investment of almost $900 million is running thin. With intense competition from deep-pocketed global rivals like Amazon, companies like Flipkart and Snapdeal could face more heat in the coming days. Paytm striking this deal for Freecharge's acquisition comes at the right time as to avoid it losing the subsidiary to Flipkart if the Snapdeal was sold before.

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Referring to the poor performance by the e-commerce major Snapdeal, SoftBank said the company's performance was weaker than expected.

Even though SoftBank, Nexus Venture Partners and Kalaari Capital are yet to resolve their conflict, the latest round of talks has pushed them closer to a deal, three people aware of the discussions said, requesting anonymity as the talks are confidential.

SoftBank has invested about $1 billion into Snapdeal since 2014, but is facing a fierce competition from United States major Amazon which snatched the No.2 spot from Snapdeal. The company in a report said that it "recorded loss from financial instruments at Financial Assets and Liabilities at Fair Value through Profit or Loss (FVTPL) of ¥160,419 million ($1.4 billion)".

Snapdeal is now valued at $7 billion while Ola at $3.5 billion.

This is less than a four times the price that Freecharge was acquired at by Snapdeal at $400 million (nearly Rs 2,661.1 crore) in 2015. The loss resulted mainly from a fall in the fair value of financial instruments at FVTPL from March 2016 to March 2017.