Paytm Founder To Buy Back Stake From Alibaba Group Affiliate Amid Increased Scrutiny Of Chinese Investments In India

Vijay Shekhar Sharma, founder and chief executive officer (CEO) of Paytm, has entered into a deal with Ant Financial to acquire a 10.30 per cent stake in the Indian fintech firm for $628 million in a move that seems to be orchestrated to reduce the Noida-headquartered giant’s exposure to the Chinese company.

Under the agreement, Sharma will acquire 10.30 per cent stake in Paytm from Ant Financial through an off-market transfer.

On closing of this transaction, Sharma’s shareholding in Paytm (direct and indirect) will increase to 19.42 per cent, whereas Ant financial’s shareholding will reduce to 13.5 per cent, according to a regulatory filing on Monday (7 August).

"The acquisition will be made by Mr. Sharma’s 100% owned overseas entity, Resilient Asset Management B.V. (“Resilient”) based in the Netherlands," Paytm said in a statement.

"Closing of the transaction will occur shortly at the prevailing market price. Based on the closing price as on 4 August 2023, the value of the 10.30 per cent stake amounts to $628 million," it added.

Sharma’s Resilient will issue optionally convertible debentures to Ant Financial, allowing the Chinese giant to “retain economic value of the 10.30% stake,” Paytm said.

Ant Financial does not have a representation on Paytm’s board.

Accordingly, no cash payment will be made for this acquisition, and neither will any pledge, guarantee, or other value assurance be provided by Mr Sharma, directly or otherwise, the company said.

Commenting on the development, Vijay Shekhar Sharma said, “I am proud of Paytm's role as a true champion of made-in-India financial innovation, and our achievements in revolutionizing mobile payments and contributing to formal financial services inclusion in the country. As we announce this transfer of ownership, I would like to express my sincere gratitude to Ant for their unwavering support and partnership over the past several years".

Earlier in 2020, India amended its foreign direct investment policy, making government approval mandatory for investment proposals coming from countries it shares land-border with.

A committee headed by the home secretary decides on such proposals.

The policy does not mention any country but it was specifically designed to prevent Chinese companies from acquiring Indian entities.

Further, the DPIIT is also scrutinising Chinese automakers having ties with Indian companies following allegations that some of them have on-boarded proxy Indian partners to act as a front for them, without any strategic long-term intention of moving manufacturing capabilities to India.

Following its China-focused policy, the Centre last month reportedly rejected the proposal from Chinese automaker BYD Motors to set up a $1 billion four-wheeler manufacturing facility in India.

The application, submitted to the Department for Promotion of Industry and Internal Trade (DPIIT), outlined plans for an electric vehicle plant in Hyderabad.

To assess the investment proposal, the DPIIT sought input from various departments. During the discussions, concerns regarding security issues related to Chinese investments in India were raised.

During the evaluation process of BYD Motors and Megha Engineering and Infrastructures Ltd's proposal, security concerns were raised, leading to its rejection by the Centre.