China’s Ant Group swaps stake in India’s Paytm for debt

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Jack Ma-founded Ant Group will swap nearly half its equity stake in Indian payments company Paytm for convertible debt, as geopolitical tension lingers between India and China.

The 10.3 per cent stake, worth about $628mn, will be transferred from Ant’s Netherlands company Antfin to a Netherlands group owned by Paytm’s founder and chief executive Vijay Shekhar Sharma. His holding in Paytm will rise to 19.4 per cent, while Ant’s will decline to 13.5 per cent.

No money will change hands. Sharma’s offshore entity will issue Ant optionally convertible debentures, a type of long-term debt that can be converted to equity shares at a later stage. That allowed “Antfin to retain economic value of the 10.3 per cent stake”, said Paytm in a stock market filing on Monday.

“There is a perception among stakeholders that having a Chinese shareholding is a risk factor,” said a person familiar with the transaction, citing geopolitical tension between China and India. By reducing Ant’s ownership, the deal “goes a long way” in mitigating that risk, they added.

Paytm shares climbed as much as 11.6 per cent to a high of Rs887.55 ($11) on Monday, before pulling back to Rs848.25.

The payments company went public in 2021 at a $20bn valuation, but shares tumbled as analysts questioned its cash-burning business model. Shares are still 45 per cent lower than their peak after listing, with Sharma vowing last month to be “free cash flow positive by the year-end”.

Relations between India and China worsened after deadly clashes between troops on the Himalayan border in 2020. India banned hundreds of Chinese apps including ByteDance-owned short video platform TikTok, in retaliation on national security grounds.

New Delhi denies that it discriminates against Chinese companies, and India’s IT minister told the Financial Times that the country was “open” to Chinese investment.

But China’s embassy in India last year complained about the “frequent investigations” Indian financial authorities had launched into Chinese firms, such as smartphone makers Vivo, Xiaomi and Oppo.

Despite the tension, trade between India and China has grown to $136bn last year, according to the Indian government.

Sharma told the FT that Paytm was partially inspired by Ma, a Chinese entrepreneur who founded Chinese ecommerce giant Alibaba. “I became totally interested in China, Alibaba and Jack — all three things,” Sharma said in 2015.

His hero became his backer. In 2015, Ant made its first investment in Paytm, which marketed itself as an Indian version of the Chinese internet business.

“I would like to express my sincere gratitude to Ant for their unwavering support and partnership over the past several years,” Sharma said in a press release on Monday.

Ma was the highest-profile victim of China’s tech crackdown and gave up control of Ant earlier this year. Yet Chinese authorities have more recently warmed to the company, ending a regulatory revamp of the group last month while urging Ant to continue its international expansion.

Beijing hopes the tech group’s global influence can support Chinese businesses going abroad at a time when the economy is slowing and ties with the US are strained.

Additional reporting by Ryan McMorrow in Beijing