One97 Communications Ltd, the parent of fintech giant Paytm, may not be able to use proceeds of its mega initial public offering (IPO) for the proposed share buyback plan.

The fintech firm cannot use the proceeds as rules restrict such a move, news agency PTI reported quoting sources. Rather, Paytm will use its liquidity for the purpose.

Last week, the company said that its board will meet on December 13 to consider a proposal for share buyback.

“… we wish to inform you that a meeting of the Board of Directors of the Company is scheduled to be held on Tuesday, December 13, 2022 to consider a proposal for buyback of the fully paid-up equity shares of the company…,” Paytm said in a regulatory filing with the stock exchanges.

There has been a buzz that the company is using its IPO funds for the buyback, which is prohibited as per regulations. A listed company can use IPO proceeds only for the specific purpose it is raised for and that too is monitored.

Paytm is likely to use its pre-IPO cash reserves for the buyback and it will start using the generated cash flow for its expansion in the near future.

While announcing the buyback, Paytm said its management believes that the move would be beneficial for its shareholders considering the startup’s prevailing liquidity or financial position.

Share buyback involves a company buying back its own shares from investors usually at a higher price than the prevailing market rate.

The fintech startup’s shares are facing a rout on the exchanges. While the lock-in period for its pre-IPO investors expired last month, it led to a sell-off. SoftBank recently offloaded 4.5% of its stake worth about $200 Mn in a bulk deal.

The fintech major reported a loss of INR 571 Cr in the second quarter (Q2) of the financial year 2022-23 (FY23), up 21% year-on-year (YoY). Revenue from operations soared 76% YoY to INR 1,914 Cr during the period under review.