What Does ANT Group’s ‘Significant Influence’ Over Paytm Mean?

Alibaba’s affiliated ANT Group, which is one of the most active investors in India, is all set to go public. In its latest initial public offering (IPO) prospectus, ANT Group has detailed its investment in digital payments giant Paytm and food aggregator business Zomato. 

The China-based investor has highlighted that it has a “significant influence” over Paytm’s parent company One97 Communications and holds 30.33% (nearly a third) stake in it, Economic Times reported. “Entities over which we have significant influence or joint control are classified as associates or joint ventures,” ANT Group said.  

The “significant influence” definition comes from the accounting standards requirement, which technically is any investment more than 20% with a board seat. The term does not consider the practical aspects of how things are run on the ground on a day-to-day basis.

ANT Group’s stake in Paytm parent is estimated to be of about $5 Bn, based on the $16 Bn valuations of the company ascribed to its business after a $1 Bn round in November 2019. That round was led by US asset manager T Rowe Price and ANT Group, SoftBank Vision Fund were participants. ANT Group, formerly known as ANT Financial, is an investor in Paytm since 2015.

Given the anti-China sentiment, the unclear use of “significant influence” may become a bit of a problem for Vijay Shekhar Sharma-led Paytm. Though the digital payments giant has been under public scrutiny for having Chinese investors the company has reiterated that it is an Indian business and not a Chinese one. Indian Prime Minister Narendra Modi had endorsed the brand during the 2016 demonetisation exercise.  

Separately, ANT Group highlighted that its additional investment in Zomato is stuck due to  India’s current foreign direct investment (FDI) policies, which has put a screening process for all investments coming in from neighboring countries. The policy was put in place to track all Chinese investments coming into India.

Zomato had raised $150 Mn from ANT Group in January 2020, but has only received $50 Mn so far. The investment, which valued Zomato at $3 Bn, was delayed as ANT Group was looking to make that transaction from its $1 Bn unicorn fund. By the time, the China-based investment firm set up the fund, the Indian government revised FDI guidelines.

ANT Group has been an investor in Zomato since 2018. It had invested $210 Mn in the company for 14.7% stake and became the online food delivery company’s largest investor. Then in November 2018, ANT Group also raised his stake to 23%. Currently, it owns 25% stake in Zomato. After the 2018 investment, ANT Financial reportedly also got a greater say in Zomato’s operations as compared to other stakeholders.

ANT Group’s statement coincides with rising anti-China sentiment which has not only affected the Chinese companies and brands operating in India but has also homegrown companies that have a hint of Chinese investment. That comes as a bigger problem for Indian startups as China is one of the most active investors in India. 

According to data and analytics firm GlobalData, Chinese Investment in Indian startups have grown by 12 times from $381 Mn in 2016 to $4.6 Bn in 2019. Overall, 17 Indian unicorns today have Chinese investors on their board. Here’s a table to showcase the lead Chinese investors on board of Indian unicorns.