Release of Zomato and Paytm IPOs will hit the Ant Group
As per as the Economic Time reported, Jack Ma’s Ant Group will not be able to participate freely in the rights and bonus issues by Paytm and Zomato after they list, because of the Indian Government’s restriction on Chinese foreign direct investment (FDI) introduced last year.
ANT Group has been an investor in Paytm since 2015 and owns a 30.33% stake in it. And it also said that its additional funding in Zomato is stuck due to India’s new FDI policy. As per the Global Data, Chinese Investment in Indian startups have grown by 12 times to $4.6Bn in 2019. As per FY21 data, Ant Group is the largest shareholder of Paytm, as it owns 30.33 percent stake. It is also the second-largest shareholder of Zomato, where it owns 16.65 percent via two entities – Antfin Singapore and Alipay Singapore Holdings.
According to the tax experts and lawyers, the rules specify that any new shares being allotted to investors hailing from countries that share land borders with India will need government security since both the entities were unlisted and bonus or rights offerings by such companies are not very common.
Legal experts say that since tax and other rules are easier to comply with, unlisted companies with foreign shareholders typically choose preferential allotments or share splits over bonus or rights offers. To ensure this, a few unlisted companies with domestic promoters have opted for rights issuance, but rights and bonus offers by public listed companies are more frequent as they are used to raise more capital and also reward shareholders. The experts further said that the restrictions will also apply to other actions like mergers and demergers. Tax consultants further added that most of the Chinese entities that have applied for FDI approval over the past year have not yet received authorisation.
Amid concerns about Chinese entities taking over Indian companies during the inconsistencies in the market spurred by the COVID-19 pandemic, the Centre had introduced restrictions in 2020 through Press Note 3. As tensions with China escalated on the border, India’s stance hardened further.
Ant Financials’ inability to participate in such offerings could lead to its stake being diluted in relation to other investors, which don’t face any such obstacle when it comes to claiming their entitlements.
Reported by CNBC,In April, Zomato had filed for an IPO of up to Rs 8,250 crore ($1.1 billion), where the company will issue fresh shares worth up to Rs 750 crore. Currently Paytm is conducting due diligence and is expected to file documents for its IPO over the next few months.