India’s Zomato to raise $1B ahead of rival Swiggy IPO

Zomato said on Tuesday its board had approved the company’s proposal to raise $1 billion through a so-called qualified institutions placement, its first major fundraise since its IPO in 2021 as quick commerce battle intensifies in India.

The deliberations for the funding comes weeks before Swiggy, Zomato’s chief rival, makes its public debut. The Bengaluru-headquartered Swiggy, backed by Prosus Ventures, SoftBank and Accel, is looking to raise $1.4 billion through its IPO next month.

Zomato’s move — described by an investor as “sucking the air out of the room” for rivals — has come as a surprise. Jefferies analyst said the capital raise was “unexpected” as Zomato already has $1.2 billion on its books. The move is likely geared to help Zomato lower the ownership of foreign institutional investors to below 50% and convert into a “domestic” company, they said.

A majority domestic ownership will allow Blinkit, Zomato’s quick commerce offering, to follow the inventory model in India. Indian law requires foreign-owned firms to operate merely as a marketplace — and not own any inventory they sell in the country.

“Based on our industry interactions, vendors’ take-rate is around 2% of GOV to compensate for running the operations & earning return on investments (working capital). Inventory model will also allow Blinkit to have a tighter control over the inventory and take calculated risks when it comes to launching or scaling up new categories, as it expands well- beyond grocery,” Jefferies analyst wrote.

In a shareholder letter Tuesday, Zomato co-founder and chief executive Deepinder Goyal said the firm needs additional capital “given the competitive landscape and the much larger scale of our business today.”

“We believe that capital by itself does not give anyone the right to win (and that service quality is the key determinant of success), but we want to ensure that we are on a level playing field with our competitors, who continue to raise additional capital,” he added.

This is breaking news. More to follow.