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Ant Group, founded by Jack Ma, has decided to exchange nearly half of its equity stake in Paytm, an Indian payments company, for convertible debt. This move comes amidst ongoing geopolitical tension between India and China.
The stake, valued at approximately $628 million, which accounts for 10.3% of Paytm, will be transferred from Ant’s Netherlands company, Antfin, to a Netherlands group owned by Paytm’s founder and CEO, Vijay Shekhar Sharma. This transaction will increase Sharma’s holding in Paytm to 19.4% while decreasing Ant’s ownership to 13.5%.
No monetary transaction will occur. Sharma’s offshore entity will issue Ant optionally convertible debentures, a form of long-term debt that can be converted into equity shares in the future. Paytm stated in a stock market filing on Monday that this structure allows Antfin to keep the economic value of the 10.3% stake.
“There is a perceived risk associated with Chinese shareholding,” stated an individual familiar with the transaction, referring to the geopolitical tension between China and India. By reducing Ant’s ownership, this deal significantly mitigates that risk,” they added.
On Monday, the shares of Paytm rose as much as 11.6% to a peak of Rs. 887.55 ($11) before pulling back to Rs. 848.25.
In 2021, Paytm went public with a $20 billion valuation, but its shares faced a decline as analysts raised concerns about its cash-burning business model. Currently, the shares are still 45% lower than their peak after the listing, and Sharma has pledged to achieve “free cash flow positivity by the year-end.”
The relationship between India and China deteriorated following deadly clashes between troops on the border in 2020. In retaliation on grounds of national security, India banned several Chinese apps, including TikTok, owned by ByteDance.
New Delhi denies any discrimination against Chinese companies, and India’s IT minister expressed openness to Chinese investment in an interview with the Financial Times.
However, the Chinese embassy in India raised concerns last year about the Indian financial authorities’ frequent investigations into Chinese firms, such as Vivo, Xiaomi, and Oppo.
Despite the tension, trade between India and China reached $136 billion last year, as reported by the Indian government.
Inspired by Jack Ma, the Chinese entrepreneur who founded Alibaba, Vijay Shekhar Sharma stated in 2015 that Paytm was partially influenced by China and Alibaba. Ant made its first investment in Paytm in the same year, positioning itself as an Indian counterpart to the Chinese internet business.
In a press release on Monday, Sharma expressed his sincere gratitude to Ant for their continuous support and partnership over the years.
Although Ma faced challenges in China’s tech crackdown and relinquished control of Ant earlier this year, Chinese authorities have recently shown support for the company, ending their regulatory revamp last month and encouraging Ant’s international expansion.
Beijing hopes that Ant’s global influence can assist Chinese businesses in their overseas ventures during economic slowdown and strained relations with the US.
Additional reporting by Ryan McMorrow in Beijing
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