Walmart may have to take Flipkart public

Walmart may have to take Flipkart public

SoftBank had a change of mind barely 24 hours after the Bentonville retail giant announced it is purchasing 77% stake in Flipkart - including SoftBank's total share - for $16 billion valuing India's largest e-commerce company at over $21 billion.

"There is likely to be capital gains withholding tax implications when the shares of Flipkart Singapore are sold by Softbank or other foreign investors". This deal will increase the competition between Walmart and Amazon in the Indian e-commerce industry. Speaking to the Times of India last month, Son revealed that SoftBank was earlier eager to invest in Snapdeal, but the deal did not materialise eventually.

Speaking about PayTM mall, the online marketplace, which primarily on its online-to-offline (O2O) model, had a market share of about 5.6% in 2017, its first full year of operations, with gross merchandise volume, or gross sales, of about $1 billion, according to Forrester Research. In its Credit Outlook report released today, the rating agency said it expects the deal to initially weaken U.S. retail giant's credit metrics, with retained cash flow (RCF) to net debt ratio likely dropping to the low-30 per cent range from 40 per cent now and debt to EBITDA (earnings before interest, tax, depreciation and amortisation) ratio likely to double from 1.6 times now. After that SoftBank opted for Flipkart and made an investment in the Bengaluru-based ecommerce major.

Citing a source, the report added that SoftBank could be freed from a clause in its agreement with Flipkart that restricts it from investing more than $500 million in Paytm Mall until 2020.

Softbank backed Snapdeal in the hope that the e-tailer would challenge Flipkart's dominance in the e-commerce space. Walmart founder Sam Walton's grandson, Steuart Walton, is reportedly likely to join Flipkart's board of directors. Post this round, SoftBank is slated to have a controlling stake.

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Analysts say Walmart would still enjoy a comfortable 56% in Flipkart even if Soft-Bank holds on to its stake.

Other deciding factors would be Son's relationship with Walmart and that SoftBank likes to be a long-term investor, sources said, adding the Japanese conglomerate is very bullish on India and sees vast opportunities for growth of investment.

In the Walmart-Flipkart deal, the revenue department will go through the share purchase agreement to ascertain the goal of investment and the emanating gains.

SoftBank will get around $4 billion if it sells its entire 21 per cent stake in Flipkart.

After SoftBank CEO Masayoshi Son inadvertently announced on May 9 that the Walmart-Flipkart deal was finalised, the company is now in a tight spot and is examining its options to exit as well as stay in the Indian ecommerce company.

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