Paytm cannot use IPO proceeds for share buyback

According to the latest information from the corporate world, One 97 Communications Ltd, the parent company of Paytm, cannot utilize proceeds from the Initial Public Offer for share buyback. The board of directors of One 97 Communications Ltd is set to meet on Tuesday to consider and approve a proposal for share buyback.

A few days ago, the company stated in its regulatory filings that top management believes a share buyback at this point would be beneficial for the shareholders. The decision has been taken by top management after taking into consideration the current liquidity and financial position of the company.

As the company cannot use money obtained from the Initial public offering, One 97 Communications Ltd will have to use strong liquidity to finance the share back. According to the latest regulatory filings and returns, the company has liquidity of Rs 9,182 crores.

Image of Vijay Shekhar Sharma Paytm CEO
Paytm CEO Vijay Shekhar Sharma
Source: Fortune India news

Paytm founded in 2010 by Vijay Shekhar Sharma is the largest digital service provider in the country with more than 350 million members. One 97 Communications Ltd based in Noida is the parent company of Paytm. The company went public through an initial public offering in November 2021 and raised more than 18,300 crore Indian rupees.

Following its massive IPO, the shares of Paytm operator tumbled on stock markets which caused investors to lose nearly 1 lakh crore in the market. Various investment analysts and market watchers criticized how pre-IPO valuation was conducted.

Stock market data suggests that the stock has declined by more than 60 percent in 2022 as profitability was hit badly during this time frame. Increasing competition in the digital payments sector and increased cost of marketing also had deep impacts on the profitability and costs prospects of the payments giant.

The announcement regarding share repurchase was warmly welcomed by investors and traders as the stock surged by nearly 7.16 percent on Friday last week. Stocks of Paytm are currently traded at 544.60 rupees per share. More market reaction towards the share repurchase announcement will be seen on market on Monday.