Valuation problems? SoftBank logs $1.4-billion loss in Snapdeal, Ola

$1-billion valuation loss from Snapdeal alone; stage set for Flipkart merger

Japanese telecom and internet giant SoftBank has written off nearly $1 billion in the value of Snapdeal (its best asset in India till recently), as it pushes to offload the Kunal Bahl-led company onto larger rival Flipkart. 

In its annual filings on Wednesday, the Tokyo-based multinational also wrote off $400 million in the value of taxi aggregator Ola — the second-largest investment in India for Masayoshi Son-led company. Valuation has been a roadblock for the proposed merger of Snapdeal with the country’s largest e-commerce player Flipkart. At its peak, Snapdeal was valued at around $6.5 billion, but at the current deal table, lead investors want to settle the transaction at no more than $1 billion. While the co-founders Bahl and Rohit Bansal are resisting the merger at that value, an early-stage investor in Snapdeal — Nexus Venture Capital — has used its veto power to block the deal so far. But things may change now, said analysts. 

SoftBank has recognised a loss of $1 billion (JPY 114,059 million) in the year ended March 31, 2017, due to a drop in valuation of shares of subsidiaries and associates, including Starfish Investments, which holds shares in Jasper Infotech — the owner of Snapdeal. 

“(The) highly competitive e-commerce market in India has made a trend of the company’s (Snapdeal’s) business performance lower than initially anticipated,” SoftBank said in a statement. “This situation caused a material decrease in net asset value of Starfish Investments.” Since August 2013, SoftBank has invested close to $900 million in Snapdeal, which was seen as a prime contender to take on Flipkart and Amazon in India.

However, after being overtaken by Amazon and slipping to a distant third place in India’s e-commerce market, SoftBank is now brokering a deal to sell Snapdeal to Flipkart.

Analysts estimate that while Flipkart has an annualised gross merchandise value (GMV) run rate of $6 billion and Amazon $4.8 billion, based on sales during the month of March 2017, Snapdeal’s GMV will be much lower at just $1-1.5 billion. At the end of 2015, Snapdeal was said to be closing in on Flipkart with co-founder Bahl publically stating that the company would reach the $10-billion GMV mark faster than its rival.

In the year that ended March 31, 2016, Snapdeal reported a loss of Rs 2,960 crore on a revenue of Rs 1,456 crore.

After convincing early-stage investor in Snapdeal, Kalaari Capital, to agree to the sale, SoftBank is said to be close to getting the nod of approval from Nexus as well.  The deal would include SoftBank spending as much as $1.5 billion to buy a double-digit stake held by US investor Tiger Global in Flipkart.

On the write-off, SoftBank said in a statement, “this mainly resulted from recording a loss, as the amount of changes in the fair value of the financial instruments at FVTPL from March 31, 2016, to March 31, 2017. Financial instruments at FVTPL included preferred shares of Jasper Infotech and ANI Technologies.” 

This would mark the fourth consecutive quarter SoftBank has marked down the value of its combined holdings in both Ola and Snapdeal. In the nine months that ended December 2016, SoftBank had written off around $475-million from its investments in the two companies, making the final quarter markdown the harshest.

In December, Ola raised $350 million from SoftBank, RNT Capital and Falcon Edge Capital at a valuation of $3.5 billion. SoftBank, which pumped in $250 million, brokered the deal at a 30 per cent drop in valuation, compared to the previous round, reflecting in the loss the company reported in fair value of its shareholding in Ola.

Besides Ola and Snapdeal, SoftBank has investments in OYO Rooms, messaging app Hike Messenger and on-demand grocery delivery platform Grofers. The company had also backed online real estate player Housing, which got sold to NewsCorp-owned PropTiger. SoftBank has a joint venture with Bharti for investments in solar energy in India. 

“The valuation of our financial investments is frequently adjusted upwards or downwards due to accounting policies, currency fluctuations and market dynamics. The loss reported in today’s (May 10) earnings represents the aggregate impact of such revaluations during the course of the entire fiscal year,” said a SoftBank spokesperson.