Published: Mon, May 14, 2018
Finance | By Claude Patterson

Taxmen seek info on Walmart deal

Taxmen seek info on Walmart deal

SoftBank Vision Fund invested about $2.5 billion in Flipkart in August previous year after a failed attempt to orchestrate a merger with Snapdeal, which was its first bet in the Indian online retail space in 2014.

In last few years, the face of Indian e-commerce has undergone a massive shift since SoftBank and Alibaba have begun investing in the fledgling Internet economy. 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.

Post the Walmart-Flipkart, SoftBank reportedly had a second thought about selling its entire Flipkart stake to Walmart.

But the talks with Paytm Mall would proceed only if SoftBank make exit from Flipkart. 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. "Despite this deterioration, the acquisition is credit positive because it provides immediate scale in Indias burgeoning retail e-commerce sector and we expect that a combination of increased cash flow and debt reduction will push the RCF/net debt ratio back above our 35 per cent". It would be little surprise if by the time Walmart actually gets their hands on Flipkart that they discover Amazon have overtaken them and Walmart discover they've bought the 2nd or 3rd biggest marketplace in India, not the 1st.

Sources said to PTI that SoftBank is yet to take a call on exiting Flipkart.

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.

"So if SoftBank says something that Walmart doesn't agree with, there still have to be discussions".

The right to buy additional stake could become crucial in Walmart's overall scheme of things at Flipkart after SoftBank's reversal in plans.

To lower its tax liability from 40% to 10%, it would need to hold the shares in Flipkart till August 2019 at the very least, which doesn't look a plausible situation after, at least for now.

Worth mentioning here is that SoftBank in April had chose to invest United States dollars 400 million (about Rs 2,600 crore) for a 21 per cent stake in Paytm Mall. This investment will be made by Walmart purchasing new shares of Flipkart at the same price as the acquisition transaction. Last week, Walmart told the SEC in regulatory filings that the U.S. retail giant has an option to invest an additional $3 billion in Flipkart at the same valuation within a year of completing the acquisition of a 77% stake in the company.

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