SoftBank to invest $10bn in India, buys Snapdeal stake

 Pedestrians walk past a shop of Japanese telecom giant SoftBank in Tokyo. The firm said yesterday it would invest $627mn in India’s fast-growing online marketplace Snapdeal.

Reuters/Mumbai

Japanese telecom and media group SoftBank Corp has set its sights on Indian e-commerce in its aggressive expansion drive, saying it will invest about $10bn in the booming sector as it took a strategic stake in one of its rising stars.

Masayoshi Son, chief executive of SoftBank, laid out a 10-year investment plan for India yesterday, starting with the purchase of a $627mn stake in fast-growing online marketplace Snapdeal. Son’s global ambitions flared into public view last year when SoftBank bought No. 3 US mobile carrier Sprint Corp for $21.6bn.

The Snapdeal purchase comes as international investors hunt deals in online retail in India, which has the world’s third-largest Internet user base but where e-commerce is still relatively underdeveloped. For cash-rich SoftBank, owner of a third of newly-listed Chinese e-commerce giant Alibaba, the move is the latest in a series of deals designed to counter sluggish growth at home.

“I have a strong willingness to invest more like $10bn in the next 10 years,” Son said in an interview on Indian CNBC after his company announced plans to buy in Snapdeal, which connects small businesses with customers in an online marketplace. “I strongly believe that Snapdeal has the potential to be like the Alibaba of India.”

In a separate deal announced on Tuesday, SoftBank said it will lead a $210mn investment round with existing investors in ANI Technologies, which owns a mobile application for taxi bookings that competes with the likes of Uber.

SoftBank didn’t disclose how big a stake it will have in Snapdeal, which will use funds to expand operations to compete with bigger, free-spending rivals Flipkart.com and Amazon.com.

The company did say it will become the biggest investor in Snapdeal, where sales of everything from clothes to computers have brought in around 25 million registered users and 50,000-plus merchants, attracting international shareholders like e-commerce operator eBay Inc and investment firm BlackRock Inc.

One person with knowledge of the deal told Reuters SoftBank will own about 30% of New Delhi-based Snapdeal, buying new shares in the firm, valuing all of Snapdeal at around $2bn. Snapdeal declined to comment on the terms of the deal.

“SoftBank is a major investor in the Internet space and them putting in a large sum of money validates the growth of Indian e-commerce,” said Niren Shah, managing director at venture capital firm Norwest Venture Partners.

Kunal Bahl, co-founder and chief executive of Snapdeal, said the two sides were quick to negotiate a deal, taking just three weeks. “Most of the capital investment we’re going to make is in technology,” he said in an interview, signalling about $250mn will be spent next year.

Bahl said the company plans to open a Bangalore innovation centre in two weeks, and Snapdeal was planning to hire about 500 engineers.

Pressure had been growing on Snapdeal to raise funds to compete as online retail surges in India, with local industry leader Flipkart raising $1bn in July, and global e-commerce giant Amazon.com pledging to invest a further $2bn in its India unit.

The SoftBank investment is in line with the $600mn-$650mn sources told Reuters Snapdeal had been seeking, and is the biggest investment by a single investor in the e-commerce sector in India. With this round of investment, Snapdeal, co-founded by Bahl and Rohit Bansal four years ago, has raised about $1bn this calendar year. The company said it plans to use the money to ramp up technology and supply chain management systems, and add order fulfilment centres to 30 cities. The company currently has 40 fulfilment centres in 15 cities.

Snapdeal will also look at making three or four bolt-on acquisitions in the coming few months specifically in the area of mobile technology and set up an incubation centre to work with start-up businesses in the mobile technology space, the company said.

CEO Bahl, who has said he also wants Snapdeal.com to become “the Alibaba of India”, told Reuters in September that the company was focusing on improving its technology platform so that it could connect more small-scale enterprises with buyers. Snapdeal plans to expand its merchant base to 1mn in the next three years.

Both deals were negotiated under newly appointed SoftBank vice chairman Nikesh Arora, reflecting the company’s recent aggressive overseas expansion.