launches one of India’s biggest initial public offerings later this year.
Cumulatively, the shares being converted could be worth more than Rs 600 crore, people aware of the matter told ET, based on the Noida-based company’s most recent valuation.
Paytm was last valued at under Rs 12 lakh crore, or $16 billion.
In order to facilitate these transactions, Paytm is also working with lending companies to enable loans of around Rs 100 crore for its top executives, the sources said. Such financing is expected to help employees deal with the tax payout during the conversion, which will be charged on the difference between the current share price and the price at which the ESOPs were granted.
This initiative will cover around 300 employees, said one person aware of the details.
“They (Paytm) were getting many requests from employees about the conversion, and since it’s a significant amount, the financing is being arranged through partner lenders,” the person added.
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Paytm has not officially commented on the valuation it expects to list at, but people aware of the company’s thinking estimate that it could be more than $25 billion.
A spokesperson for Paytm declined to comment on the latest developments.
(Graphic: Rahul Awasthi/ETtech)
Paytm has been issuing ESOPs for over 12 years now and its shares are valued at around Rs 18,000 currently. An employee who received ESOP grants at a price of Rs 1,000 per share, will therefore have to pay tax (based on salary bracket) on the differential of Rs 17,000.
In terms of value, 80% of the ESOP conversions will be led by Paytm’s senior employees, sources said.
Staff shares are also exempted from any lock-in periods after the IPO. For example, Paytm has the option of raising about Rs 2,000 crore in a pre-IPO round, but investors who put money in this round will not be allowed to sell their shares for a year after the IPO.
“I know people who have taken loans to do this before and sold the shares when a window was available,” said a former top executive at Paytm. “There is obviously a lot of excitement about Paytm’s IPO, and when such conversion is being planned in bulk, financing will be easier through banks or NBFCs,” said this person, who had sold Paytm ESOPs during buybacks conducted by the payments major.
Paytm will bear the interest payment for the loans being arranged, sources added. The staff is expected to pay this back within six months of listing.
“That’s standard for loans against securities,” one of the sources added.
Earlier this month, the Noida-based company also sent a letter to shareholders seeking their nod
to double its ESOP pool ahead of the much-anticipated IPO. The proposal will be discussed on September 2 during Paytm’s extraordinary general meeting (EGM).
ESOPs have always been used as a tool to attract and retain talent in new-age companies. Over the last 12-18 months, demand for ESOPs has risen as startups have seen valuations surge with
record levels of capital being pumped into the startup economy.
Ola are among those to have granted stock options through ESOP schemes. The idea is these shares can be sold at a higher value at the time of an IPO or share buyback during a company fundraise.
Last month, ET reported that a host of startups have completed staff share buybacks worth almost $546 million cumulatively.
Startups have an ESOPs fable to tell
Founders often say this is part of the “wealth creation” opportunity that comes from working for a startup where everyone gets to make money and not just the founders.
Multiple highly valued startups and new unicorns this year are planning to conduct similar buybacks over the coming months as well, sources have told ET.
In July, SoftBank- and Alibaba-backed Paytm
had filed its draft red herring prospectus with the markets regulator, the Securities and Exchange Board of India (Sebi), to raise Rs 16,600 crore ($2.2 billion) through a public issue in what would be one of the biggest Indian IPOs in at least a decade.