Escalating tensions between India and China, and new foreign direct investment norms are likely to delay Zomato’s plans regarding the $100 million equity capital, lately raised from Ant Financial in a funding round.
Amid the coronavirus pandemic, various food delivery companies, such as Swiggy and Zomato, have faced severe revenue losses due to lockdowns imposed by the government. Zomato was recently in a bid to shore up capital to withstand market competition against Swiggy. As reported, Ant Financial has invested over $560 million in Zomato accounting for a 25 per cent stake in the food tech aggregator.
Reliable sources state that the Indian government had altered FDI norms in April 2020 making it mandatory to gain prior approval for foreign investments from countries with whom India shares its land borders. The government has clarified that the move has been taken in view of protecting local businesses and blocking opportunistic takeovers. The notification has created a confusion amongst Indian startups, especially those that have raised billions of dollars in funding from Chinese investors and internet giants.
Zomato had raised $150 million from existing investor Ant Financial which is a subsidiary of Chinese internet giant Alibaba. The funding had effectively raised the startup’s valuation to $3 billion.
The country of origin for the funding in a transaction is the one that would require regulatory approval, state new FDI norms. Around 18 of the 25 unicorns in India are financed by Chinese investors, comprising Tencent, Alibaba, Meituan, and Ant Financial, who have invested in Paytm, Udaan, Ola, Swiggy, Oyo Hotels and Homes, and PolicyBazaar among others.
As per sources, the change in FDI norms has become another challenge for Indian startups that were already struggling from the COVID-19 impact. The Indian government has received requests from numerous industry representations asking for clarifications regarding issues like what shareholding percentage in an investment vehicle will amount to beneficial ownership.