Indian eCommerce giant Flipkart is partially turning its digital payments app PhonePe into a separate company, a move aimed at expanding its capital access to fuel its growth.
Flipkart, which is owned by US-based retailer Walmart, said in a statement that PhonePe, which competes with Alibaba-backed homegrown payments pioneer Paytm and GooglePay, will raise $700 million in primary capital.
The funds will be raised from current Flipkart investors led by Walmart at a post-money valuation of $5.5 billion, the statement said.
The move is expected to give PhonePe the access to dedicated investment that can fuel its “long-term ambitions” for the coming three to four years. The partial spin-off would also allow PhonePe to constitute a new Board of Directors to create a “tailor-made equity incentive or ESOP (Employee Stock Ownership Plan) program for its employees,” the company said.
The exercise undertaken by Flipkart’s Board was timed recognizing the “momentum that has been achieved, as well as PhonePe’s significant growth potential,” according to a statement.
Global investors like Tiger Global, Tencent, Accel Partners and Microsoft have invested in Flipkart, which is engaged in a tight competition with the Jeff Bezos-owned Amazon for a major share of the booming Indian eCommerce market.
“Flipkart and PhonePe are already among the more prominent Indian digital platforms with over 250 million users each. This partial spin-off gives PhonePe access to dedicated long-term capital to pursue our vision of providing financial inclusion to a billion Indians,” said Sameer Nigam, Founder and CEO at PhonePe.
The partial spin-off will help PhonePe maximize its potential and maximize value creation for Flipkart and our shareholders,” said Kalyan Krishnamurthy, CEO, Flipkart Group.
Flipkart will continue to be PhonePe’s majority shareholder, it added.
Founded in December 2015, PhonePe claimed over 250 million registered users and more than 100 million monthly active users (MAU) generating close to 1 billion digital payment transactions in October 2020.
PhonePe had entered the financial services space in 2017 by enabling the sale of gold on its platform. The company had later launched mutual funds and insurance financial products like tax-saving funds, liquid funds, international travel insurance and insurance products for COVID-19. Currently, PhonePe is accepted at 13 million merchant outlets across 500 cities in India.