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Home >Companies >Start-ups >Zomato funding in a soup amid India-China tensions

New foreign direct investment (FDI) norms and rising tensions between India and China may delay food tech aggregator Zomato’s plans to tap into the $100 million equity capital that it had raised in a recent round from Ant Financial.

In January, Zomato had raised $150 million from existing investor Ant Financial, a subsidiary of Chinese internet giant Alibaba, which valued the startup at $3 billion. The first tranche of this investment worth $50 million came in January.

Food delivery firms, such as Zomato and Swiggy, have faced severe business and revenue loss because of the lockdown imposed to contain the spread of coronavirus. Zomato was shoring up capital to fight for market dominance against rival Swiggy, which had raised $113 million from Naspers in February. Ant Financial has invested more than $560 million and holds almost a 25% stake in the Gurugram-based food tech company.

The tension between India and China, and India’s new FDI norms have made it difficult for Zomato to access the $100 million received from Ant Financial, said a report by Financial Times.

The Indian government had made changes to FDI norms in April, making it necessary to get prior approval for foreign investments from countries India shares land borders with, including China, to block ‘opportunistic’ takeovers, and protect local businesses. The notification had left the Indian startups, which have raised billions of dollars from Chinese investors and internet giants, puzzled. “The last funding was raised from Antfin Singapore Holding Pte. Ltd. (Antfin), which is a Singapore-based entity. Hence, Zomato might be confused whether an approval is needed at present," said a person requesting anonymity.

However, according to the new FDI norms, the country of origin for the capital in a transaction, China in this case, is one that would require approval. Zomato chose not to comment. At least 18 of the 25 unicorns in India are backed by Chinese investors, including Alibaba, Meituan, Tencent, and Ant Financial, who have invested in Ola, Swiggy, Paytm, Zomato, Udaan, PolicyBazaar, and Oyo Hotels and Homes, among others. The change in the FDI norms came as a double whammy for Indian startups, which are struggling from the impact of covid-19. The Indian government has received several industry representations seeking clarity around issues, including what percentage of shareholding in an investment vehicle will constitute beneficial ownership. Mint had reported that the government is expected to issue clarifications to its recent notification. Zomato has been in the market to raise $600 million and had acquired cab aggregator Uber’s food delivery business in India in January.

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