Financial details of the potential transaction have not been confirmed and Ant, the Alibaba-backed consumer payments credit giant, has yet to launch a formal sale process, four people told Reuters.
Paytm, which is also backed by SoftBank Group among others, was valued at around $ 16 billion during its last round of private fundraising a year ago. At that valuation, Ant’s stake in the Indian company is worth approximately $ 4.8 billion.
Both Ant and Paytm said the information was incorrect. A Paytm spokesperson said “there has never been any discussion with any of our major shareholders, or plans, about the sale of their stake.”
Ant’s possible departure from Paytm would mark another setback for the Chinese company in the immediate aftermath of the dramatic suspension of its $ 37 billion listing last month, which would have been the world’s largest.
It would also be a step back in your ambitions to become a world leader in payments. Sources told Reuters in October that Ant was cutting its financial support to many of the affiliated e-wallet firms abroad.
The main trigger for Ant to consider divesting its stake in Paytm is worsening diplomatic relations between India and China in recent months, said the people, who declined to be named because the deliberations are confidential.
Relations between the countries are at an all-time low, with troops locked in a border clash in the western Himalayas for months after a clash in June in which 20 Indian soldiers were killed.
Since the crash, India has tightened the rules for China’s investments and banned dozens of Chinese mobile apps, including those from tech giants Tencent, Alibaba and ByteDance. It banned 43 more apps at the end of last month.
“There is a growing awareness within Ant’s management that it could not increase its stake in the company,” said one of the people with direct knowledge, adding that Ant’s top executives have recently discussed the idea.
Still, Ant was in the middle of an investment review and could still decide to file a divestment if it failed to get its desired valuation, he said.
Two other sources said that as a result of the review, Ant could end up retaining a small stake in Paytm.
Competitive intensity
Indian startups are heavily funded by Chinese investors such as Alibaba and Tencent. Bankers have previously said they were looking to bolster their presence in the country with the aim of increasing their revenue outside of China.
Alibaba has invested more than $ 4 billion in India so far and had plans to invest around $ 5 billion in 2021, which has now been suspended, one of the sources said. Alibaba did not respond to a request for comment.
Ant first invested in Paytm in 2015 and owns its 30% stake in the company through its parent company, One97 Communications, according to Ant’s initial public offering prospectus, which described the Indian company as a significant partner.
In addition to the stricter investment rules for Chinese companies in India, tougher competition is likely another factor behind Ant’s calculations regarding Paytm, which is losing its dominance, two of the people said.
Online transactions, loans, and e-wallet services have grown rapidly in India, led by a push from the government to get the country’s cash-loving merchants and consumers to embrace digital payments.
That has led to the entry and expansion of WhatsApp, owned by Facebook, Alphabet’s Google Pay, and Walmart’s PhonePe. Some national players are also expanding their operations.
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