One97 Communications Ltd, the parent of payments administrations provider Paytm, is in talks with five lenders to help employees get money to exercise their stock options before the company’s abundantly awaited initial public offering (IPO), two individuals aware of the discussions said.
Paytm wants to help employees pay for buying their vested options and make tax payments whenever required, individuals said, requesting anonymity.
Stock options are taxed as a prerequisite when the employee exercises the option to purchase the stocks. The exercise price is the amount the employee pays to purchase the vested options.
The contrast between the fair market value of the shares on the date of exercising the options and the amount paid to exercise the option is taxed based on the salary bracket slab of the employee.
In addition, employees may have to pay capital gains tax in the event that they decide to sell their shares.
“Paytm (One97) is in talks with financing institutions such as IIFL, ICICI Bank, and Edelweiss Capital to help its employees convert their employee stock ownership plans into shares and provide them loans to pay for exercise price and tax payments. These loans are expected to be of the duration of 12 months,” said one individual referred to above.
It is expected to facilitate a loan size of around ₹100 crores towards this end, helping 300-500 employees who hold stock options, the subsequent individual said.
An One97 representative declined to remark on the turn of events.
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“The One97 management is also in talks to absorb the interest costs of the loans being provided to employees. The final names of the lenders and total credit size is expected to be decided this week,” the subsequent individual said.
Lenders, including Edelweiss-backed ECL Finance Ltd and ICICI Bank, provide these loans to customers to exercise their stock options.
“In case an employee fails to pay back, the lenders usually allow the individual to sell a portion of their shares to pay the loan. In case Paytm’s IPO is delayed, employees also have the option to sell their shares in the gray market to pay back the loan,” said a banker, requesting anonymity.
Paytm’s liquidity exercise comes at an at once to dramatically increase its ESOP (employee stock option plan) pool to reward employees before its November-end IPO. In a letter to shareholders last week, the company said that it hopes to alter the One97 Employee Stock Option Scheme 2019 by more than doubling its existing ESOP pool from 24.1 million value options to 61.1 million at a face value of ₹1 each. The decision to expand its stock options pool will be put to the vote in the company’s extraordinary general meeting (EGM) on September 2, it was detailed earlier.
Since its inception, Paytm has formulated two ESOP schemes, One97 Employee Stock Option Scheme 2008 and One97 Employee Stock Option Scheme 2019, according to the draft share sale documents recorded with the Securities and Exchange Board of India (Sebi) in mid-July.