Paytm Can’t Use IPO Funds For Share Buyback, Rules Prohibit Such Move: Report

Paytm’s parent company One 97 Communications Ltd's board is set to meet on December 13 to consider a proposal for share buyback.

In November last year, Paytm raised Rs 18,300 crore through the IPO.

New Delhi: Paytm’s parent company One 97 Communications Ltd's board is set to meet on December 13 to consider a proposal for share buyback. Now a source has told the news agency PTI that One 97 Communications cannot use proceeds of its initial public offering (IPO) for the proposed repurchase of its own shares, as regulations bar any company from doing so.

The PTI source also added that the company will use its strong liquidity for the purpose. As per its last earnings, Paytm has a liquidity of Rs 9,182 crore. 

In an exchange filing on Thursday, the company announced, “The management believes that given the company's prevailing liquidity/ financial position, a buyback may be beneficial for our shareholders.”

In November last year, Paytm raised Rs 18,300 crore through the IPO. Although the stocks have since fallen 60 per cent this year amid a global tech selloff. There is an ongoing debate abput if the company is using IPO funds for the buyback. Paytm reported a Rs 2,325 crore loss in 2021-22. It posted Rs 628 crore loss in the June quarter of this fiscal year, which was narrowed to Rs 588 crore in the September quarter.

Sources told PTI that regulations prevent any company from using IPO proceeds for a share buyback. He also said that the proceeds from the IPO can only be used for the specific purpose it is raised for and that too is monitored.

The report said that Paytm's top management, in a recent meeting with analysts, has highlighted that the company is close to cash flow generation, which in the future will be used for its further expansion. Sources also indicated Paytm is close to cash flow generation. They said that Paytm in all probability will use its pre-IPO cash reserves for the buyback.

In Q2, the company reiterated that it will attain profitability by the end of September 2023. 

On the BSE Paytm’s shares closed at Rs 545 on Friday, lower than the IPO price of Rs 2,150.