Buffett could double his money with Paytm IPO

The value of Berkshire Hathaway’s investment in the parent company of Paytm, One97 Communications, is likely to double if the latter gets valued at $21.5 billion. The digital payments major has filed its draft red herring prospectus to raise a record ₹16,000 crore ($2.23 billion) in what will be the country’s biggest public float ever, comprising fresh issue shares worth ₹8,300 crore and offer for sale for a similar sum from existing shareholders, including Berkshire.

Though the roadshows haven’t begun for the issue, which is being managed by lead bankers Morgan Stanley and Goldman Sachs, according to bankers, Paytm is eyeing a valuation of $20-$25 billion. If the fintech major fetches such a valuation at the time of listing, it will value Berkshire’s holding in the $560-$700 million range, that is, a gain of 60% at $20 billion, 100.66% at $21.5 billion and 133% at $25 billion. For now, however, it is not clear what percentage of Berkshire’s holding will be sold through the issue.

Based on One97’s last funding round in 2019, when it was valued at $16 billion, Berkshire’s 2.8% (17 million shares) stake was worth $448 million, translating into a gain of 49.33%. Paytm has, till date, raised close to $3.5 billion. In September 2018, the Warren Buffet-owned investment powerhouse had pumped in $300 million (₹2,179 crore) in One97 Communications, in a funding round that valued the startup at $10 billion. The deal also marked the first investment by Buffett in India and that too in a unicorn.

It was Todd Combs, one of Buffett's ace portfolio managers, who negotiated the deal with One97 after Mark Schwartz, chairman, Goldman Sachs Asia and an independent director on Paytm's board, got the conversation going. Combs, who stepped down from the board this June, is largely behind Berkshire's technology bets, including the recent investments in Snowflake and StoneCo.

Paytm will be Buffett’s second-best investment outside of the U.S. In 2008, Berkshire had, for the first time, invested outside of the shores in Chinese electric car maker, BYD. Currently, the 8.2% stake in the listed company is worth $6.05 billion. While BYD ranks among the 10 stocks in Berkshire’s portfolio, Paytm still remains way below in the pecking order. However, Paytm’s value is significantly higher than Buffett’s bet on the telecom major, Liberty Latin America, wherein Berkshire’s cumulative stake of 5.80% stake (through class A and Class C shares) is worth just $50 million.

It will be interesting to see what kind of returns Paytm ultimately delivers for Buffett, who has been a rather reluctant investor in the technology space citing its unpredictable nature of business. In fact, it was only in 2011 that the Sage of Omaha invested in IBM. He followed it up by investing in VeriSign in 2014 and Apple in 2016.

Though Buffett had stayed away from unlisted technology companies, Berkshire’s investment in Snowflake has been a stellar one. Berkshire bought $250 million worth of shares in the IPO of the cloud software and data warehousing company at $120 a share. The stock more than doubled (111%) to $253.93 on debut in late 2020, and is now worth $1.54 billion, that is, a gain of more than $800 million.

The jury is still out on whether Todd will deliver yet another stellar picking for the billionaire investor.