China-based Ant Group has announced it will swap its stake in India-based payments company Paytm for convertible debt. As reported by the Financial Times, Ant Group will swap almost half of its equity stake in Paytm in exchange for convertible debt.

The decision was reportedly informed by the increasing recent geopolitical tensions in the area, as New Delhi has reportedly imposed  a crackdown that singles out Chinese enterprises. More precisely, a 10.3% stake that is worth around USD 628 million will be transferred from Antfin, Ant’s Netherlands company, to a group also based in the Netherlands that is owned by Paytm’s founder. Consequently, while Paytm’s founder’s holding in Paytm is expected to rise to 19.4 per cent, Ant’s share will decrease to 13.5 per cent.

Reportedly no money will be exchanged. Instead, Paytm founder's offshore entity will issue optionally convertible debentures to Ant. These are a kind of long-term debt that can be later transformed into equity shares.

The wider context Tensions between India and China have worsened after clashes between Chinese and Indian border troopers. Following the incident, in retaliation, India has reportedly banned Chinese apps like Tiktok. Whilst the Indian government has denied that it actively discriminates against Chinese companies, it was reported that representatives from the Chinese embassy in India complained in 2022 about the frequent investigations the Indian authorities conducted regarding companies like Vivo, Xiaomi, or Oppo.

Despite the tensions, the Indian government revealed that trade between the two countries grew to USD 136 billion in 2022. There is currently a perception among stakeholders that having Chinese shareholding poses risks given the current context. Therefore, Ant Group’s efforts to reduce its ownership are seen as a way of mitigating the situation.

When it comes to their value, Paytm’s shares have been fluctuating, with their valuation now lower than their peak after being listed. This is not the sole crackdown that Ant Group had to handle in recent years, as the Chinese government has similarly imposed crackdowns on the country’s tech giants. Despite the fines the company had to pay, Beijing has reportedly changed its positioning regarding the supervision of the web giants, a decision which has been recently confirmed by a government official.

What is more, Ant Group recently gained attention after it was announced that Alibaba decided to not move forward with its previous decision to sell shares to Ant Group during the recently proposed shares repurchase. Consequently, Alibaba retained its shareholder position within the company. .