Ant Financial sells Paytm stake worth $628M to Vijay Shekhar Sharma in no-cash deal

Vijay Shekhar Sharma, founder and chief executive of Paytm, has entered into a deal with Ant Financial to acquire a 10.30% stake in the Indian financial services firm in a move that appears to be orchestrated to cut the Noida-headquartered giant’s exposure to the Chinese company.

Resilient Asset Management, a firm fully owned by Sharma, is acquiring the stake from Ant Financial, Paytm said. The deal is being executed at Paytm’s share closing price on August 4, making the 10.3% Paytm stake worth $628 million.

The move allows Paytm to pare its exposure to Ant Financial, making the Indian firm more suitable for future licenses in the country. Paytm’s move “removes overhang on the stock from the risk that Antfin in future may look to reduce its stake leading to more supply. Furthermore, Sharma buying the stake at Friday’s close indicates his confidence in the story with a ‘skin in the game’ approach show,” Bank of America analysts wrote in a note Monday.

“This event also reduces risk that some other strategic investor coming who would have a major stake similar to that of Sharma. We believe a Chinese shareholder (Antfin) ceasing to be the largest shareholder, would also directionally be positive for the company fundamentals.”

Neither Sharma nor Resilient are making any cash payment in the deal, which is being executed off-market. Furthermore, Sharma has made no pledge, guarantee, or other value assurance directly or otherwise to Ant Financial, Paytm said.

Paytm jumped over 6.5% on the news.

Following the deal, Sharma’s stake in Paytm will increase to 19.42%, whereas Ant Financial’s shareholding will pare down to 13.5%, Paytm said.┬áThe move follows a turnaround at Paytm, which had a lackluster listing but has improved its finances significantly in recent quarters.

Sharma’s Resilient will issue optionally convertible debentures to Ant Financial, allowing the Chinese giant to “retain economic value of the 10.30% stake,” Paytm said. Ant Financial doesn’t have a representation on Paytm’s board.

“I am proud of Paytm’s role as a true champion of made-in-India financial innovation, and our achievements in revolutionizing mobile payments and contributing to formal financial services inclusion in the country. 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 a prepared statement.