Silver Point

Thomas J. Monaco

Independent Insight Provider

Silver Point is a boutique research firm that focuses on the broader financial services sector, with a particular focus on troubled institutions globally. 

Asia Ex Japan

Equity Bottom-Up

*Magic Fairy Dust: Square (SQ.US) has agreed to purchase Afterpay Touch (APT.AU) [Afterpay) for USD 29 bn in an all-stock transaction – implying Afterpay’s shares to be worth AUD 126.21. This is not a bad outcome for Afterpay, which only posts consistent losses. Tencent Holdings (700.HK) [Tencent] stands to gain 462% on its initial stake for a gain of over USD 800 mn – not bad for a passive deal 15 months ago;  and
Risks Remain: In addition to Tencent is suspending new user registrations for its WeChat services, as it is undergoing a “security technical upgrade” in accordance with relevant laws and regulations, there are multiple other challenges. We have no doubt that Tencent will also follow Alibaba Group (BABA.US) [Alibaba] in their formation of a financial holding company. For Tencent, WeChat Pay and the broader lending/deposit taking business are likely to be reined-in. An FHC represents significant downside risks. Earnings will compress, as capital requirements increase.

*Magic Fairy Dust: Square (SQ.US) has agreed to purchase Afterpay Touch (APT.AU) [Afterpay) for USD 29 bn in an all-stock transaction – implying Afterpay’s shares to be worth AUD 126.21. This is not a bad outcome for Afterpay, which only posts consistent losses. Tencent Holdings (700.HK) [Tencent] stands to gain 462% on its initial stake for a gain of over USD 800 mn – not bad for a passive deal 15 months ago;  and
Risks Remain: In addition to Tencent is suspending new user registrations for its WeChat services, as it is undergoing a “security technical upgrade” in accordance with relevant laws and regulations, there are multiple other challenges. We have no doubt that Tencent will also follow Alibaba Group (BABA.US) [Alibaba] in their formation of a financial holding company. For Tencent, WeChat Pay and the broader lending/deposit taking business are likely to be reined-in. An FHC represents significant downside risks. Earnings will compress, as capital requirements increase.

Tencent Holdings – Clairvoyance Pays Off

Pan-Asia Catalysts/Events, Quiddity Advisors

David Blennerhassett

Pan-Asia Catalysts/Events

Quiddity Advisors

Event-Driven

<a href="https://www.smartkarma.com/entities/square-inc" target="_blank" data-smartkarma-citation="entities:23755:1" rel="noopener">Square Inc (SQ US)</a> and <a href="https://www.smartkarma.com/entities/afterpay-limited" target="_blank" data-smartkarma-citation="entities:26940:1" rel="noopener">Afterpay (APT AU)</a> have <a href="https://cdn-api.markitdigital.com/apiman-gateway/ASX/asx-research/1.0/file/2924-02402191-3A571915?access_token=83ff96335c2d45a094df02a206a39ff4" target="_blank" rel="noopener">announced</a> a firm merger, the completion of which will create Australia's largest-ever buyout, exceeding <a href="https://www.smartkarma.com/entities/unibail-rodamco-se" target="_blank" data-smartkarma-citation="entities:21140:1" rel="noopener">Unibail-Rodamco SE (UL NA)</a>'s 2017 takeover of <a href="https://www.smartkarma.com/entities/westfield-corp" target="_blank" data-smartkarma-citation="entities:896:1" rel="noopener">Westfield Corp (WFD AU)</a> - discussed <a href="https://skr.ma/8TPFU" target="_blank" rel="noopener">here</a>.
Under the terms of the Offer, by way of Scheme, Afterpay shareholders will receive a fixed exchange ratio of 0.375 shares of Square Class A common stock for each Afterpay ordinary share.
Based on Square’s closing price of US$247.26 on July 30, 2021, this represents an implied transaction price of ~A$126.21 per Afterpay share, or a premium of ~30.6%.
Following completion of the transaction, Afterpay shareholders are expected to own ~18.5% of the merged entity on a fully diluted basis.
Square may elect to pay 1% of total consideration in cash.
Square has agreed to establish a secondary listing on the ASX to allow Afterpay shareholders to trade Square shares via CHESS.
The merger is tentatively expected to complete in the 1Q22. The Scheme has the unanimous backing of both Boards. 
More below the fold.

Square Inc (SQ US) and Afterpay (APT AU) have announced a firm merger, the completion of which will create Australia's largest-ever buyout, exceeding Unibail-Rodamco SE (UL NA)'s 2017 takeover of Westfield Corp (WFD AU) - discussed here.
Under the terms of the Offer, by way of Scheme, Afterpay shareholders will receive a fixed exchange ratio of 0.375 shares of Square Class A common stock for each Afterpay ordinary share.
Based on Square’s closing price of US$247.26 on July 30, 2021, this represents an implied transaction price of ~A$126.21 per Afterpay share, or a premium of ~30.6%.
Following completion of the transaction, Afterpay shareholders are expected to own ~18.5% of the merged entity on a fully diluted basis.
Square may elect to pay 1% of total consideration in cash.
Square has agreed to establish a secondary listing on the ASX to allow Afterpay shareholders to trade Square shares via CHESS.
The merger is tentatively expected to complete in the 1Q22. The Scheme has the unanimous backing of both Boards. 
More below the fold.

IPOs and Catalysts/Events, Global Equity Research Ltd

Arun George

IPOs and Catalysts/Events

Uncompromised, Independent, Conflict-Free Research

Global Equity Research Ltd

Global Equity Research was started in 2017 by a group of experienced research professionals. It was founded on a passionate belief in the importance and the need for uncompromised, independent, conflict-free research. We aim to provide differentiated and actionable primary and bottom up fundamental research.

Equity Capital Markets

<a href="https://www.smartkarma.com/entities/paytm-mobile-solutions-pvt-ltd" target="_blank" data-smartkarma-citation="entities:26149:1" rel="noopener">Paytm (PAYTM IN)</a>, formally known as One97 Communications, is India’s largest payments platform based on the number of consumers, number of merchants, number of transactions and revenue as of 31 March 2021, according to RedSeer. Paytm has an overall payments transaction volume market share of 40%, and wallet payments transaction market share of 65-70% in India as of FY21, according to RedSeer. Paytm’s shareholders include <a href="https://www.smartkarma.com/entities/ant-group-co-ltd" target="_blank" data-smartkarma-citation="entities:24240:1" rel="noopener">Ant Financial Services Group (6688 HK)</a> (29.6% of outstanding shares), Softbank Vision Fund (18.3%), <a href="https://www.smartkarma.com/entities/alibaba-group-holding-ltd" target="_blank" data-smartkarma-citation="entities:787:1" rel="noopener">Alibaba Group (BABA US)</a> (7.2%) and <a href="https://www.smartkarma.com/entities/berkshire-hathaway-inc-cl-b" target="_blank" data-smartkarma-citation="entities:8635:1" rel="noopener">Berkshire Hathaway Inc Cl B (BRK/B US)</a> (2.8%).  Paytm plans to raise up to Rs166.0 billion ($2.2 billion) with a primary/secondary split of 50%/50%, according to the DHRP filing. The Indian Government is highly supportive of digital payments and in 2016, introduced demonetisation efforts through the launch of Unified Payment Interface (UPI) to reduce the reliance on cash. However, India continues to be a cash-driven economy which underscores the opportunity. Due to government initiatives, improving technology, growing awareness, digital payments by value in India are expected to more than double from $20 trillion in FY21 to $40-50 trillion by FY26, according to RedSeer. <div class="content-highlight">As India’s largest payments platform, Paytm is well placed to benefit from this structural tailwind. The advent of UPI has increased competition (Google Pay, PhonePe, MobiKwik) but Paytm is also leveraging its dominance in digital payments to build a synergistic ecosystem of complementary services, resulting in a strong claim to the “super-app” tag. While the COVID-19 pandemic was disruptive particularly to the non-payments business, Paytm should return to growth as the impact of the pandemic wanes and vaccination rates rise in India. Overall, we think that Paytm's fundamentals are attractive. </div>

Paytm (PAYTM IN), formally known as One97 Communications, is India’s largest payments platform based on the number of consumers, number of merchants, number of transactions and revenue as of 31 March 2021, according to RedSeer. Paytm has an overall payments transaction volume market share of 40%, and wallet payments transaction market share of 65-70% in India as of FY21, according to RedSeer. Paytm’s shareholders include Ant Financial Services Group (6688 HK) (29.6% of outstanding shares), Softbank Vision Fund (18.3%), Alibaba Group (BABA US) (7.2%) and Berkshire Hathaway Inc Cl B (BRK/B US) (2.8%).  Paytm plans to raise up to Rs166.0 billion ($2.2 billion) with a primary/secondary split of 50%/50%, according to the DHRP filing. The Indian Government is highly supportive of digital payments and in 2016, introduced demonetisation efforts through the launch of Unified Payment Interface (UPI) to reduce the reliance on cash. However, India continues to be a cash-driven economy which underscores the opportunity. Due to government initiatives, improving technology, growing awareness, digital payments by value in India are expected to more than double from $20 trillion in FY21 to $40-50 trillion by FY26, according to RedSeer. As India’s largest payments platform, Paytm is well placed to benefit from this structural tailwind. The advent of UPI has increased competition (Google Pay, PhonePe, MobiKwik) but Paytm is also leveraging its dominance in digital payments to build a synergistic ecosystem of complementary services, resulting in a strong claim to the “super-app” tag. While the COVID-19 pandemic was disruptive particularly to the non-payments business, Paytm should return to growth as the impact of the pandemic wanes and vaccination rates rise in India. Overall, we think that Paytm's fundamentals are attractive. 

Paytm IPO Initiation: A Payments-Led Super-App

Latest News from the World’s Leading Innovators

Granite Bay Capital

An innovation focussed investment company

Granite Bay Capital is an innovation focussed investment company with a deep focus on the companies at the leading edge of innovation across major themes such as AI, ubiquitous computing, sustainability, automation and longevity.

Thematic (Sector/Industry)

<h2>Headline Developments</h2>Steam, the video game distribution platform owned by Valve (private) , has released the long-rumoured handheld gaming device the Steam Deck; available from December (although big delays are expected with the premium $649 512GB version not available until 3Q22!).

Headline DevelopmentsSteam, the video game distribution platform owned by Valve (private) , has released the long-rumoured handheld gaming device the Steam Deck; available from December (although big delays are expected with the premium $649 512GB version not available until 3Q22!).

Head of Research, IPOs & Placements, Aequitas Research

Sumeet Singh

Head of Research, IPOs & Placements

IPOs and Placements coverage across Asia Pacific

Aequitas Research

We cover all listing across the Asia Pacific along with follow-up placements. As of Dec 2020, our team had covered 539 IPOs with a hit rate of 73.5% and 685 placements with a hit rate of 66.8%.

We combine fundamental bottom-up views with our proprietary quantitative framework to provide a holistic coverage across new listings and placements. Our coverage includes pre-IPO notes before the deal is launched, follow-up analysis once the deal is live and post-listing trading analysis as well.

<div><a href="https://www.smartkarma.com/entities/paytm-mobile-solutions-pvt-ltd" target="_blank" data-smartkarma-citation="entities:26149:1" rel="noopener">Paytm (PAYTM IN)</a> plans to raise around US$2.2bn via selling a mix of primary and secondary shares in its India IPO. The company is backed by <a href="https://www.smartkarma.com/entities/ant-group-co-ltd" target="_blank" data-smartkarma-citation="entities:24240:1" rel="noopener">Ant Financial Services Group (6688 HK)</a> (<a href="https://www.smartkarma.com/entities/alibaba-group-holding-ltd" target="_blank" data-smartkarma-citation="entities:787:1" rel="noopener">Alibaba Group (BABA US)</a>), <a href="https://www.smartkarma.com/entities/softbank-group-corp" target="_blank" data-smartkarma-citation="entities:315:1" rel="noopener">Softbank Group (9984 JP)</a> and counts <a href="https://www.smartkarma.com/entities/berkshire-hathaway-inc-cl-a" target="_blank" data-smartkarma-citation="entities:1044:1" rel="noopener">Berkshire Hathaway Inc Cl A (BRK/A US)</a> among its investors.</div><div>
Paytm offers payment services, commerce and cloud services, and financial services to 333m consumers and over 21m merchants, as of Mar 21. It offers consumers a wide selection of payment options on the Paytm app. It also offers merchants solutions that allow them to accept payments, acquire and retain consumers, improve their business operations and access financial services.
We covered the company's background and positive aspects of the deal in our earlier note, <a href="https://www.smartkarma.com/insights/paytm-one-97-pre-ipo-the-positives-will-be-one-of-india-s-largest-ipos" target="_blank" rel="noopener">Paytm (One 97) Pre-IPO - The Positives - Will Be One of India’s Largest IPOs</a>.
In this note, we will talk about the not so flattering aspects of the deal.
</div>

Paytm (PAYTM IN) plans to raise around US$2.2bn via selling a mix of primary and secondary shares in its India IPO. The company is backed by Ant Financial Services Group (6688 HK) (Alibaba Group (BABA US)), Softbank Group (9984 JP) and counts Berkshire Hathaway Inc Cl A (BRK/A US) among its investors.
Paytm offers payment services, commerce and cloud services, and financial services to 333m consumers and over 21m merchants, as of Mar 21. It offers consumers a wide selection of payment options on the Paytm app. It also offers merchants solutions that allow them to accept payments, acquire and retain consumers, improve their business operations and access financial services.
We covered the company's background and positive aspects of the deal in our earlier note, Paytm (One 97) Pre-IPO - The Positives - Will Be One of India’s Largest IPOs.
In this note, we will talk about the not so flattering aspects of the deal.


Paytm (One 97) Pre-IPO - The Negatives - Asking Valuations a Long Shot

United States

Block, Inc. operates as a financial services and digital payments company. The Company develops a payments platform aimed at small and medium businesses that allows them to accept credit card payments and use tablet computers as payment registers for a point-of-sale system. Block also provides financial and marketing services.

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Block (SQ US)

Tencent Holdings – Clairvoyance Pays Off

TENCENT HOLDINGS: Square has agreed to purchase Afterpay for USD 29 bn, and Tencent stands to gain 462% or over USD 800 mn. While positive,...

Thomas J. Monaco

Afterpay Ltd (APT AU): All Squared Away

I think it is highly illustrative the co-founders are happy to kick out at price ~22% below the recent high of A$160/share, potentially suggesting...

David Blennerhassett

Paytm IPO Initiation: A Payments-Led Super-App

Paytm plans to raise up to Rs166.0 billion ($2.2 billion) with a primary/secondary split of 50%/50%, according to the DHRP filing. Overall, we...

Arun George

Weekly Innovation Review (WIRE) #41

Headline Developments: Steam , the video game distribution platform owned by Valve (private), has released the long-rumoured handheld gaming device...

Granite Bay Capital

Paytm (One 97) Pre-IPO - The Negatives - Asking Valuations a Long Shot

Paytm (PAYTM IN) plans to raise around US$2.2bn via its India IPO. The company is backed by Ant (6688 HK) (Baba (BABA US)), Softbank (9984 JP) and...

Sumeet Singh

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