There’s plenty of blame to go around for Paytm’s disastrous debut on Thursday. The financial super-app’s shares slumped 27 per cent after pricing at the top of the range, raising $2.5 billion, an Indian record. Sellers, buyers, and Paytm itself all played a role. The one with the most to lose, though, is lead banker Morgan Stanley.
The Wall Street firm led by James Gorman had powerful parties to please, starting with its client’s outspoken founder, Vijay Shekhar Sharma. The e-commerce giant Alibaba and related entities owned more than one-third of One 97 Communications, Paytm’s parent, prior to the deal. They remain top owners but trimmed their holdings, as did SoftBank’s Vision Fund and Warren Buffett’s Berkshire Hathaway. The list of new buyers reads like a who’s who of savvy money managers, with BlackRock and Canada Pension Plan Investment Board leading hungry anchor investors that bought 45 per cent of the total offer.
Managing those competing interests can be hard, but it’s an underwriter’s job. And Morgan Stanley was responsible for coordinating six other banks in finalising the price, per the prospectus. The simple explanation for settling on such a high valuation, even after a bit of a struggle to fill all the orders, is that the owners insisted. They partly crystalised a dizzying multiple of 44 times sales in a rich market.
Fizz in the fiasco
Even so, Paytm’s flop calls into question Morgan Stanley’s earlier decision not to pitch to take Life Insurance Corp of India public. The government’s crown jewel is preparing for a blockbuster listing worth a mooted $14 billion. Government deals take up huge amounts of time and don’t pay but they afford bragging rights.
Morgan Stanley’s decision to opt out may have been influenced by having such a busy pipeline. The bank has been a leader in testing the Indian market’s appetite for money-losing or barely profitable tech firms. Until Paytm, the bank did well, overseeing first-day pops between 20 per cent and 80 per cent for three of India’s most successful prominent tech debuts this year. Two of those, beauty shop Nykaa and PolicyBazaar-owner PB Fintech, went public back-to-back with Paytm, placing additional strain on the latter’s deal.
Every bank runs a dud deal from time to time. Even if there are extenuating circumstances, it’s the lead arranger that risks landing in the sin bin. Unless Paytm’s shares recover fast, that’s where Morgan Stanley is heading.