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SoftBank changes track in India as initial bets go sour

LiveMint logoLiveMint 26-04-2017 Mihir Dalal

Bengaluru/New Delhi: After some of its expensive initial bets in India soured, Japan’s SoftBank Group Corp. is making another attempt at finding attractive investments in India’s internet business by selling its also-ran portfolio companies to bigger rivals, some of which it turned down in the past.

SoftBank, which invested nearly $2 billion in five Indian start-ups in the year to November 2015, is trying to sell struggling online marketplace Snapdeal to bigger rival Flipkart, Mint reported on 22 March. Another portfolio company Grofers, a groceries ordering app, is in talks to merge with the online groceries market leader BigBasket, Mint reported on 19 April. SoftBank may also invest more cash into Flipkart and BigBasket while it is separately in discussions to invest up to $1.5 billion in Paytm, India’s largest payments app, Mint had reported then.

If these deals go through, SoftBank, the world’s most prolific start-up investor, will more than double its $2 billion exposure to Indian start-ups. It will also become the dominant investor in Indian start-ups, overtaking Tiger Global Management, which is set to benefit from SoftBank’s second coming (the proposed Flipkart deal involves SoftBank buying some of Tiger Global’s holdings).

It’s noteworthy that SoftBank passed up on investing in Flipkart and Paytm in 2014, picking Snapdeal over the two companies. Now, SoftBank may have to buy large stakes in these companies at expensive-looking valuations. For instance, SoftBank declined to invest in Paytm in late 2014 because of a potential conflict with Snapdeal, in which it had already invested $627 million, Mint reported in November 2014. A few months later, Paytm ended up raising cash from China’s Alibaba Group Holdings Ltd at a valuation of $2 billion. SoftBank’s proposed deal with Paytm may value the payments firm anywhere between $7 billion and $9 billion.

SoftBank, which is also the largest shareholder in Alibaba, has faltered in India. One of its portfolio firms, Housing imploded just six months after SoftBank invested $90 million in it in late 2014. Housing was eventually sold to bigger rival PropTiger in January at a price that was less than the capital it raised.

SoftBank has also been forced to lead the last funding rounds in two of its other investments, cab hailing service Ola and hotels brand Oyo, after these companies struggled to attract new investors on their terms. Ola, which is easily SoftBank’s best investment in India so far, has seen its valuation drop to $3 billion from $4.5 billion, Mint reported on 14 April.

Most of its 2014 investments in India were led by Nikesh Arora, a former Google executive who joined SoftBank in 2014 as chief operating officer. Arora left SoftBank last June.

Analysts say SoftBank is a long-term investor. In 2014, its founder Masayoshi Son pledged to invest about $10 billion in Indian start-ups over a decade. SoftBank also announced a $100-billion fund for start-ups last October so it can absorb a few costly errors, the analysts add. Son’s most famous and profitable investment, Alibaba, took 15 years to deliver returns.

Still, there’s no denying that Son has found himself on the wrong side far too often in India so far. And unlike Alibaba, his biggest proposed bets in India are all late-stage companies, which are considered by some investors to be too expensive at current valuations.

A SoftBank spokesperson didn’t respond to questions about the performance of specific companies in which it has invested. “SoftBank is deeply committed to its portfolio companies in India and elsewhere and helps them actively to grow. We would not like to comment on specific companies,” the spokesperson said in an email.

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