'Oracle of Omaha,' Warren Buffett in talks for a slice of Paytm

BENGALURU: Warren Buffett’s Berkshire Hathaway is in talks to invest about Rs 2,000-2,500 crore in Paytm parent One97 Communications, in what could be the first direct investment in India by the legendary investor, according to two people familiar with the development.

A transaction could be clinched in the coming weeks valuing Paytm, which is engaged in mobile payments and online financial services, at over $10 billion and giving it more heft. The firm already counts China’s Alibaba Group Holdings and Japan’s Soft-Bank as major backers. “Berkshire is in talks to pick up a 3-4% stake in the company and it is being done through a primary subscription of shares,” said one of those mentioned above.

The transaction was discussed at the board meeting of Vijay Shekhar Sharma-promoted Paytm held a few weeks ago. But a deal, including the size of the investment, has not been finalised yet. “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,” said the second source.

Todd Combs, one of Berkshire’s key fund managers, who is also seen as a potential chief investment officer at the firm, is leading the transaction, according to one of the sources. This would also be the first investment by Buffett, who until a few years ago stayed away from even listed technology companies, in a privately held company that still incurs heavy losses, underlining the potential he sees in India’s technology market.

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There was no response to queries emailed to Berkshire Hathaway, including CFO Marc Hamburg, and to Paytm. The Noida-based company said last month that it conducts 5 billion transactions worth $50 billion in gross transaction value (GTV) on an annualised basis based on its performance in June. It saw total income increase by 38% to Rs 828 crore with losses of Rs 899.6 crore in the year ended March 2017, according to Registrar of Companies (RoC) filings.

Paytm was valued at around $7 billion last year when it raised $1 billion from Softbank Vision Fund and around $10 billion earlier this year during a secondary share sale by employees of the company. If the transaction goes through, it will give Paytm more firepower to strengthen its market leadership against Flipkart-owned Phonepe and Google’s Tez besides potential competition from Facebook-owned WhatsApp and Reliance Jio.

The development comes as Paytm has also been diversifying its business across financial services and offline payments after acquiring customers through services such as mobile recharges, rail and air bookings, movie ticketing and utility bill payments. Through One97 Communications, the company owns 49% in Paytm Payments Bank with the remaining stake held by Sharma in his personal capacity as per regulations. The Reserve Bank of India recently asked the payments bank to stop adding new customers due to issues with its e-KYC process, as reported earlier. KYC stands for know your customer.

But this has not hindered the aggressive expansion plans of its broader payments business. Paytm is building a hyperlocal online-to-offline business under its New Retail strategy. This will increase footfalls for offline stores by offering discounts on payments through Paytm’s app using QR codes. Merchants are not being charged a commission by Paytm but have to pay a fee for logistics and marketing costs. Another thrust area for the company is Paytm Money, where customers can start investing their savings in products like mutual funds. The company has set a target of 20 million customers in the next three years. It has also set up subsidiaries for life and general insurance.

Berkshire Hathway had tried its hand in India in 2011, when it entered the market as a corporate agent of Bajaj Allianz General. It exited two years later owing to lack of profitability and laws that constrained ownership by foreign companies. Several Berkshire portfolio companies have operations in India but it has not made any direct investments. After avoiding technology stocks for decades, Buffett said last year that not investing in companies like Google-owner Alphabet and Amazon had been a mistake. Since 2016, Berkshire has also been a big buyer of Apple, where its stake is now worth over $50 billion, making it the firm’s largest holding.

Buffett confirmed earlier this year that his firm had explored an investment in ride-hailing giant Uber, indicating that the firm is going after opportunities in the private technology market.