At at time when China’s businesses in India are under the scanner following the Ladakh standoff, China’s Ant Financial has indicated that Chinese companies with financial stakes in Indian startups too can wield considerable influence over them.
China’s Ant Group, which was a subsidiary of Alibaba’s, has said said in its IPO prospectus that is has ” “significant influence” over One97 Communications Ltd, which is the parent company of Paytm. “Our major associates include One97 Communications Ltd that operates Paytm, our e-wallet partner in India, in which we held a 30.33% equity interest,” Ant Group said in its filing. “Entities over which we have significant influence or joint control are classified as associates or joint ventures,” it added. Paytm was last valued at $16 billion in November 2019, which would indicate that Ant’s stake in the company could be worth over $5 billion.
As per accounting standards, as a general rule, significant influence is presumed to exist when an investor holds, directly or indirectly through subsidiaries, 20 per cent or more of the voting power of the investee.
The statement would raise some eyebrows in India. Over the last few months, India has banned 59 Chinese apps, appeared to block Huawei’s 5G trials in India, and also cancelled contracts of Chinese firms. These moves had been justified along the grounds of national security — indeed, the Indian government had said that it had banned the apps because they were “engaged in activities which is prejudicial to sovereignty and integrity of India, defence of India, security of state and public order.” Now with Ant claiming that it has “significant influence” over Paytm, experts could wonder how far this influence actually extends.
Paytm, for its part, has always maintained that it is an Indian company, and doesn’t share data with its Chinese investors. But the souring of India-China relations has already led to China’s Ant Group pull back from another investment — Zomato is yet to receive the remaining $100 million out of a $150 million commitment from Ant after the Indian government had passed a rule which required investments in India from India’s border nations to be first approved by the government. This move was widely thought to target China, and it seems to have worked, at least in the short term. “Separately, in 2020, a change in foreign investment regulation in India led to our further evaluation of the timing of our additional investment in Zomato,” Ant said in its filing.
But Ant’s admission in its own IPO prospectus could mean more trouble for Indian firms with significant investments from China. Both the government and Indian consumers appear to be growing wary of Chinese companies — Vivo pulled out of the sponsoring this year’s IPL following an online outrage which questioned how a Chinese company could sponsor India’s cricket league. And with Chinese companies now talking of “significant influence,” Indian startups could end up having to explain their Chinese investments, both to the government and their Indian customers.