Paytm founder Vijay Shekhar Sharma will acquire a 10.3 per cent stake from China’s Ant Group, in an unusual transaction that will make the entrepreneur the company’s single biggest shareholder without paying any cash.

Sharma, also chief executive officer of Paytm-parent One97 Communications, will increase his holding in the Indian fintech company to 19.42 per cent while Ant’s drops to 13.5 per cent, a regulatory filing indicated. Ant gets convertible securities that will give it the option to recoup its stake in future. That means it can raise its holding back to above 23 per cent at a later date, potentially benefiting if Paytm’s stock price rises, though the company did not specify a timeframe for exercising that option. 

For now, the deal reduces a large overhang on the market as investors had bet that Ant, the Chinese fintech pioneer backed by billionaire Jack Ma, would eventually offload a chunk of its Paytm shares. By taking control, Sharma also addresses concerns that a prominent Chinese company is running one of India’s best-known tech firms, at a time tensions between the two countries are rising.

Paytm’s shares surged as much as 11 per cent on Monday (Aug 7), building on a 50 per cent rally in 2023. It had shed some gains, and was up about 7 per cent in late trading.

“This acquisition could be for the optics of getting rid of the tag of being a Chinese company. However, the big positive is that Vijay Shekhar Sharma is increasing his commitment to the company,” said Shriram Subramanian, founder of InGovern Research, a corporate governance advisory firm. “The overhang” of Ant selling shares “will go away”.

Geopolitics has complicated Paytm and Ant’s relationship. India has clashed with China in recent years in a dispute that hurt Chinese companies’ ability to operate in the neighbouring country. This year alone, India issued orders to block more than 200 apps and websites, largely linked to China.

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Several Indian startups including Paytm have since come under fire domestically for ceding vast stakes to Chinese companies. Alibaba Group Holding, which owns about a third of Ant, completed the sale of its remaining stock in Paytm in recent months.

“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,” Sharma said in the statement.

Sharma took the digital payments pioneer public in 2021 only to see the shares plummet in one of the worst performances for a major initial public offering. Shares closed last Friday at 796.6 rupees, compared with the 2,150 rupee offering price.

The SoftBank Group-backed company is beginning to staunch losses and win users in new segments such as smaller merchants. Revenue from operations rose 39 per cent to 23.4 billion rupees (S$3.8 million) in the June quarter.

“This also speaks volumes about Antfin belief in Paytm as they are supporting out of way with no commercial upfront,” Rahul Jain of Dolat Capital wrote in a research note. Bloomberg