Zepto Looking to Structure a Debt Deal with Edelweiss and Others for INR 1,500 Cr

For over INR 1,500 crore (more than $175 million) in structured debt, Zepto founders Aadit Palicha and Kaivalya Vohra are in advanced discussions with Edelweiss Alternative Asset, local family offices, and smaller credit funds.

According to a report, the acquisition aims to assist the fast commerce company consolidate local control ahead of its planned initial public offering (IPO) by purchasing shares from current international investors. Edelweiss has made a legally binding offer.

The loan includes a minimum interest rate of 16% and an equity-linked upside that could raise total profits to almost 18%. According to various media reports, it is being carried out at a valuation of over $5 billion, which is the same as when Zepto sought equity financing the previous year.

Binding Term Sheet by Edelweiss

With a three-year term, the deal is anticipated to close by July, with Edelweiss serving as the primary underwriter. Edelweiss will anchor the rise by contributing half of the money and has provided a firm term sheet.

 Family offices and smaller credit funds are contributing the remaining INR 750 crore, and it is anticipated that they will do so on the same terms. According to the company's IPO valuation, they might wind up making an 18% return, the individual continued.

The promoter-level purchase funding will enable the Zepto founders to raise their ownership position in the business from the current 18% to about 20%. Once the acquisition is finalised, Zepto's domestic shareholding is expected to rise to around 30%, according to a report. Y Combinator, General Catalyst, and Nexus Venture Partners are some of its largest backers.

Ownership Dynamics

The founders are making the transition to ensure that they satisfy the Indian ownership threshold and comply with foreign direct investment (FDI) regulations that govern online retail. This could be essential for regulatory clearances and initial public offering (IPO) eligibility.

India's FDI regulations prohibit FDI in inventory-led e-commerce but permit 100% foreign investment in online marketplace models. Inventory-led models can only be lawfully operated by Indian Owned and Controlled Companies (IOCCs).

A business must have more than 50% Indian ownership and control in order to be eligible as an IOCC. The board of Eternal, the publicly traded parent company of Zomato, adopted a plan on April 19 to limit foreign ownership of the company to 49.5%, the company informed stock exchanges.

The objective of the action was to grant Blinkit "greater operational flexibility" by enabling it to maintain inventory, rather than exclusively operating as a marketplace, as mandated by India's foreign investment regulations.

Zepto arrangement "is classic promoter financing—a high-yield debt deal with embedded equity upside." However, securing a commitment of promoter stock is uncommon for Indian new-age tech enterprises, particularly those with a significant cash burn.