PayPay valuation could exceed $20 billion in planned December U.S. IPO, sources say: Reuters

Investors expect thevaluationofPayPaycouldexceed3 trillion yen ($20billion) as SoftBankprepares for an initial public offering of the Japanese payments app operator in the United States as early asDecember, according to two sources.

SoftBank has been meeting with institutional investors since mid-September to discuss potentialvaluations in theIPO, the sources, who are familiar with the matter, said.

Investors see 2 trillion yen as a baseline but expect thevaluationcouldtop 3 trillion yen, according to the sources.

The potentialvaluationand the views of investors are being reported by Reuters for the first time.PayPaydeclined to comment.

The sources declined to be named as the information is not public, and cautioned that deliberations are continuing and factors includingvaluationremain subject to market conditions.

The deliberations come as the U.S.IPOmarket enjoyed its busiest quarter since the fourth quarter of 2021, with companies raising $24billionthrough first-time share sales in the third quarter, according to Dealogic.

The baselinevaluationis based on expansion ofPayPay’s Japanese business but there is a range of views among investors about its prospects for growing its overseas footprint, whichcouldsupport a highervaluation, one of the sources said.

PayPayannounced last month thatusers would be able to make payments abroad, beginning with South Korea, which is a popular foreign destination for Japanese travellers.

“The key focusgoing forward will be to what extent overseas expansion can be realistically pictured as a growth story, given the lack of business foundations not only in the U.S. but also in Asia,” said the source.

PayPayhas played a role in encouraging Japanese consumers to move away from a long-standing preference for cash by offering rebates on payments through its mobile app.

It is the market leader in QR code payments and also offers services including banking and credit cards. Reuters reported in August SoftBank has selected investment banks for the potentialIPO.

Japan’s cashless payments ratioexceeded 40% last year, compared to more than 80% in South Korea and China. The industry ministry aims to lift that further, as part of efforts to cut costs and address labour shortages.

SoftBank’s telecoms arm reported that operating profit at its financial segment, which includesPayPay, more than doubled to 18.1billionyen in the April-June quarter.

“Structural profit improvement is progressing, and future growth can be anticipated,” said SBI Securities analyst Yukari Housui.

PayPayis taking steps to bolster its cryptocurrency business. Last weekPayPaysaid it has acquired a 40% stake in the Japanese business of Binance and plans to launch new crypto services.

PayPay’s ownership is split between a number of SoftBank entities: wireless carrier SoftBank Corp, the Vision Fund investment arm, and internet business LY Corp, which is a joint venture between SoftBank and Naver Corp.

Companies around the world are looking to list in the U.S. as they seek highervaluations. Around 20 Japanese companies have listed there in the last five years although in some cases they have underperformed and later delisted.

Round One, an operator of amusement attractions, is considering overseas listings for two subsidiaries as it expands in the U.S. and looks to boost its brand recognition.