Paytm Shares Drop After Report on Fresh Regulatory Scrutiny

(Bloomberg) — Shares of Paytm dropped after a report that India’s markets watchdog asked it for more information related to its initial public offering, potentially exacerbating the fintech pioneer’s regulatory problems.

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The stock fell as much as 8.9%, the most since February, after Moneycontrol reported that the Securities and Exchange Board of India issued a so-called show-cause notice to founder Vijay Shekhar Sharma and some board members who served when the company was going public. The regulator is looking into whether Paytm misrepresented facts during the IPO process to classify Sharma as an employee rather than founder, making him eligible for stock options, Moneycontrol said, citing people it didn’t identify.

Representatives of Sebi didn’t respond to requests for comment, while Paytm didn’t have an immediate comment. India’s BSE and NSE stock exchanges each said they have sought clarification from Paytm regarding the report, and the company is yet to respond.

A Sebi probe would suggest a new regulatory onslaught against Paytm, which has already been coping with actions taken by the Reserve Bank of India earlier this year. The stock has plunged about 30% since an RBI order hit its banking affiliate, and charismatic founder Sharma has been working to rebuild the business around digital payments and distribution of financial services like loans and cash-back.

Last week, Paytm agreed to sell its movie and events ticketing business to Zomato Ltd. for $244 million in cash to focus on its core businesses.

Sharma pioneered fintech in India with Paytm mobile wallets, and then QR codes. His company, once India’s most valuable startup, won the backing of some of the word’s biggest business executives including Alibaba Group Holding Ltd. founder Jack Ma, SoftBank Group Corp. boss Masayoshi Son and Berkshire Hathaway Inc. Chairman Warren Buffett. A disastrous capital markets debut in 2021 was perhaps Sharma’s first public speed bump, one from which Paytm is yet to recover — the stock is still down about 75% from its listing price.

Paytm competes with Walmart Inc.’s PhonePe, Alphabet Inc.’s Google and billionaire Mukesh Ambani’s Jio Financial Services Ltd. in India’s crowded digital payments space.

–With assistance from Chiranjivi Chakraborty and Devidutta Tripathy.