Zepto founders Aadit Palicha and Kaivalya Vohra are in advanced talks with Edelweiss Alternative Asset, domestic family offices and smaller credit funds for around Rs 1,500 crore (more than $175 million) structured debt, people familiar with the matter told ET.

The deal is aimed at acquiring shares from existing foreign investors to help the quick commerce startup consolidate domestic ownership ahead of its planned initial public offering (IPO), they said.

Edelweiss has submitted a binding bid, they said, adding that the loan carries a minimum interest rate of 16%, with an equity-linked upside that could enhance total returns to about 18%.

People aware of deal details said it is being executed at a valuation of nearly $5 billion, the same as when Zepto raised equity financing last year.

The transaction, with a tenure of three years, is expected to close by July and will see Edelweiss underwriting the bulk of the loan. “Edelweiss has given a binding term sheet and will anchor the raise by committing half of the amount,” said a person with knowledge of the matter. “The remaining Rs 750 crore is being raised from family offices and smaller credit funds, who are expected to come in on the same terms.”

Domestic shareholding may be 30%

They may end up generating an 18% return based on the valuation of the company during the IPO, the person added.

An Edelweiss spokesperson declined to comment. Zepto didn’t respond to queries.

The promoter-level acquisition financing will help the Zepto founders increase their stake in the company to around 20%, from the current 18%, said another person aware of the matter.

Zepto’s domestic shareholding will likely increase to more than 30% once the deal is finalised, said a person familiar with the development. Its biggest backers include Nexus Venture Partners, Y Combinator and General Catalyst, among others.

Ownership threshold

The founders are undertaking the move to comply with foreign direct investment (FDI) regulations that govern online retail and meet the Indian ownership threshold, which could be crucial for regulatory clearances and IPO eligibility. India’s FDI rules allow 100% foreign investment in online marketplace models, but ban FDI in inventory-led ecommerce. Only Indian Owned and Controlled Companies (IOCCs) can legally operate inventory-led models. To qualify as an IOCC, a company must have more than 50% Indian ownership and control.

On April 19, the board of Eternal, listed parent of food and grocery delivery company Zomato, approved a proposal to cap foreign ownership in the firm at 49.5%, it told stock exchanges. The move was aimed at providing “greater operational flexibility” to quick commerce unit Blinkit by allowing it to hold inventory, rather than operate solely as a marketplace, as required under India’s foreign investment rules.

The Zepto deal “is classic promoter financing—a high-yield debt deal with embedded equity upside,” said one of the people cited above. But securing by a pledge of promoter equity is a rare instance for Indian new-age tech firms, especially with a high cash burn, the people said.

Previously, edtech startup Byju’s, online pharmacy PharmEasy and budget hotel chain Oyo have all resorted to loans because equity funding was difficult to snag, especially at steep valuations. Byju’s has defaulted and is bankrupt, while PharmEasy’s valuation was cut by more than 90% last year.

Zepto received National Company Law Tribunal (NCLT) approval on January 9 to merge its Singapore-based parent Kiranakart with Indian entity Kiranakart Technologies, streamlining its structure. In order to align with its consumer brand, Kiranakart Technologies has been renamed Zepto Pvt Ltd, show regulatory filings. The restructuring comes amid a broader wave of reverse flips by Indian startups seeking to tap domestic capital markets.

Secondary sale

Separately, Zepto is also closing a $250-million secondary transaction that will see participation from private equity firms including Motilal Oswal Financial Services, as reported first by Bloomberg. This secondary sale is designed to further increase Indian ownership and clean up the company’s cap table ahead of its public listing, another person familiar with the development said.

Palicha, Vohra and the employee stock ownership (Esop) pool together currently hold around 28% of Zepto, according to people in the know. The company aims to add another 8-10% of Indian shareholding through these transactions before the IPO paperwork is filed.

The push for higher Indian ownership also comes at a time when Zepto and its rivals are facing heightened scrutiny over operational models and profitability metrics in the quick commerce space.

In a recent LinkedIn post, Palicha said Zepto is nearing $4 billion in annualised gross order value (GOV), posting around 300% year-on-year growth and about 30% sequential growth since January. He also pointed to a 50% reduction in ebitda losses (excluding Esop costs) and operating cash flow burn over the past three months, with a target to achieve break even on both fronts soon.

Blinkit had an annualised GOV of $3.6 billion in the quarter ended December 31, 2024. Swiggy Instamart posted an annualised gross sales run rate of $1.8 billion in the same quarter.

The buzzy quick-commerce industry is seeing cash-burn levels rise sharply in the backdrop of hectic growth. According to an ET report on February 15, the sector’s monthly burn had surged to Rs 1,300-1,500 crore, led by intensified competition among Zepto, Blinkit, and Swiggy Instamart.

Eternal founder and CEO Deepinder Goyal had told ET in an interview that for its quick commerce unit Blinkit, “It’s about making sure the discipline of execution stays intact in the team. Our burn rate is 2-3% of the sector, while our category share would be 40-45%.”

Author Credits- Shilpy Sinha and Samidha Sharma, msn