Paytm’s Surprise Share Buyback Plan Is Drawing Skepticism
Paytm's plan to buy back shares has left investors surprised and worried about the loss-making Indian fintech firm's growth prospects as it uses funds to prop-up its hammered stock.
The board of One 97 Communications Ltd., the listed-entity that runs Paytm, will decide on the buyback on Tuesday. The move comes as the stock has plunged about 75% since its listing last November to emerge as the world's worst-performing large initial public offering in a decade. The slump also prompted a unit of Japan's SoftBank Group Corp. — a key backer — to trim its holding.
While a buyback could help stem the rout in Paytm shares at least temporarily, investors are questioning the attempt to manage the stock price rather than putting the cash to use for business. The company, India's leading digital payments brand, last month posted a wider second-quarter loss.
“There is little merit in bucketing cash this way,” Institutional Investor Advisory Services India Ltd., a proxy advisory firm, wrote in a note on Monday. Unless the shares are repurchased at more than 2,150 rupees apiece — the price at which they were sold in the IPO — the buyback will favor only Paytm's pre-IPO shareholders and employees, it wrote.
Paytm's shares were up 1.9% as of 11:53 a.m. in Mumbai, taking their gains since the buyback announcement to 6%.
“While tabling a proposal for a buyback, the company has ensured that there is surplus liquidity, which means that all cash requirements are adequately budgeted,” Paytm said in an emailed statement on Tuesday. “The management is confident of strong operational performance and remains focused on building long-term value for its shareholders.”
Indian firms cannot use money raised from an IPO to fund a share buyback, the company
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