PhonePe seeks $8 billion value with $1-billion fund-raise

PhonePe seeks $8 billion value with $1-billion fund-raise

Bengaluru, May 27: After Flipkart’s board gave approval to hive off PhonePe, paving the way for a solo fund-raise, the payments platform is in talks to raise about $1 billion from marquee investors like China’s Tencent and Tiger Global, three people aware of the development said.
Tencent and Tiger Global had backed Flipkart, which acquired PhonePe three years ago. However, the outcome of the talks would depend on the valuation at which these investors are willing to put money in the firm. PhonePe is looking at a valuation of at least $7-8 billion and will not take transaction forward at a lower level.
“Valuation can make or break these talks. PhonePe is in discussions with Tencent as it could leverage a strategic investor willing to back it for the long-term, especially to fight well capitalised Paytm,” a person aware of the discussions said. This person added it could take another two-three months for the investments talks to close formally.
If the current discussions fructify into a transaction, this would be the largest such capital raise for PhonePe, started by former Flipkart executives Sameer Nigam and Rahul Chari.
For Walmart, which would remain a large shareholder in the case of new investors coming on-board, PhonePe’s valuation will be crucial since it bought a 77% stake in Flipkart for $16 billion, at a steep valuation of $22 billion. “Board will have to approve PhonePe’s valuation for the independent fund-raise,” the person mentioned above added.
This is not the first time PhonePe has explored independent funding as Nigam-led PhonePe had held talks for investments from strategic players like PayPal in 2017. Back then, too, valuation emerged as a deal-breaker and those talks did not result in an investment. However, the discussions with the new investors are more realistic to come through, sources added.
A PhonePe spokesperson did not respond to an email query. Tiger Global and Tencent did not respond to TOI’s queries either.
PhonePe, before Walmart acquired Flipkart, got a capital commitment of $500 million in late 2017. Little over half of this capital has been pumped into PhonePe, sources added.
While PhonePe has access to the rest of the capital pool committed by parent Flipkart, it needs new funds to feed its high-spend expansion spree that started in the past few months.
PhonePe has got well-capitalised rivals such as SoftBank and Alibaba-backed Paytm, Google Pay, which are fighting for local payments market. Impending entry of WhatsApp could put further pressure on PhonePe and its rivals. A person aware of the matter said PhonePe’s annual spend for 2019 is said to be in the range of $150-170 million. Its rival Paytm too is stitching up a deal that could see it raising $1-2 billion.