Fintech unicorn Razorpay, in a strategic yet potentially costly move, is considering a cross-country merger that could lead to a substantial tax payment ranging between $250 million to $300 million. The plan involves merging its US-registered entity with its Indian arm, aiming for regulatory approval from the National Company Law Tribunal (NCLT) within the next two months.
Despite contemplating a reduced valuation from its peak of $7.5 billion in 2021, advisors on both ends of the deal, including those in the US and KPMG and Deloitte in India, are cautious due to Razorpay’s consistent growth trajectory over the past two years. A lowered valuation would proportionally decrease the tax liability, but an excessively reduced valuation might encounter challenges in obtaining regulatory approval.
Razorpay’s decision to relocate its parent company to India is driven by its aspiration to list on Indian stock exchanges within the next two to three years, aiming to enhance regulatory navigation and strategic positioning. The company has engaged in discussions with government officials to secure the necessary approvals for the relocation process.
The startup, founded in 2014 as a payment gateway platform, expanded its services into SME payroll management, banking, lending, payments, and insurance. In 2021, Razorpay secured $375 million in its Series F round, reaching a valuation of $7.5 billion. The strategic move to relocate and potentially raise new funding in 2024 aims to cover the anticipated tax payout, with the uncertainty surrounding NCLT approval prompting these preparations.
Razorpay’s pursuit of a cross-country merger reflects a growing trend among major players in the Indian startup landscape, considering a “reverse flipping” strategy to relocate their headquarters back to India. While driven by the prospect of a public listing, this trend has encountered challenges, especially concerning tax implications for startups registered in the US.
