Tencent investing $62.8 mn in Flipkart amid China-India border row

"Our calculations based on available data indicate that Tencent holds a stake in the range of 4 - 5.3 per cent," said Paper.vc

Chinese technology conglomerate Tencent is investing $62.8 million in Walmart-owned e-commerce firm Flipkart, according to a report by business intelligence platform Paper.vc.

The investment comes amid Sino-India tensions, including the Chinese app ban and the changes to the foreign direct investment (FDI) norms and pre-clearance mechanisms on investments from China.

Walmart had announced a $1.2-billion infusion into Flipkart in July, but no filings in connection with that announcement have yet been made.

“There is the possibility though that Tencent’s investment is the first money in, as part of this larger round involving Walmart and other shareholders,” said Paper.vc.

Paper.vc said that Tencent is a minority investor in the platform whose Singapore-holding company saw Walmart acquiring a majority stake in 2018. It said Tencent shares the cap table with other minority investors, including Tiger Global, Accel, former Flipkart chief executive officer and co-founder Binny Bansal, Microsoft, and Singapore GIC.

“Our calculations based on the available data indicate that Tencent holds stake in the range of 4-5.3 per cent,” said Paper.vc.

Flipkart did not respond to the query about this development.

Even as Tencent announced that it was opening a regional hub in Singapore, it appears to be generating conflicting signals about its India strategy. Recent news reports indicated that Tencent was selling a part or all of its holding in Indian gaming platform Dream11. But it marked its Singapore announcement by enhancing its stake in Flipkart, according to the Paper.vc report.

Experts said the investment is part of the portfolio and investment restructuring strategy being adopted by Tencent to combat regulatory measures adopted by India, curbing opportunistic takeover and acquisitions of Indian firms.

“But these creative structures may further require the Indian government to revisit the restrictions put in place. Creative structure of indirect holdings in parent entities are being devised to circumvent regulatory approvals by the Indian government,” said Sumit Kochar, corporate commercial lawyer and transaction advisory partner at Dolce Vita Trustees.

Amid rising tension with China arising from a border dispute, the Indian government also recently banned a number of applications that it said were owned by Chinese companies, on the grounds of national security. Among them was Tencent’s multiplayer battle royale game PlayerUnknown’s Battlegrounds (PUBG).

But Kochar of Dolce Vita Trustees said that Tencent’s investment strategy for Indian market unicorns appears to be still strong despite the recent blow to its start-up investments, including PUBG.

Other experts said that the FDI norms introduced by the government recently apply to new investments.

“The government had carved out an exception for the ongoing investments deals from China or with Chinese investors and allowed ongoing deals to be completed within a specified time frame,” said Salman Waris, managing partner at technology law firm TechLegis Advocates and Solicitors, adding, “Also, this investment in Flipkart by Tencent looks like an indirect investment deal, as it might be routed through Tencent’s entity in Singapore.”

In August, Ant Group, which is the payment and finance-focused company of the Chinese e-commerce giant Alibaba, had said in its initial public offering prospectus at the Hong Kong stock exchange that a change in foreign investment regulation in India led to “further evaluation” of the timing of its additional investment in food delivery start-up Zomato.