Paytm Staffs Prefer 600-Crore ESOP Bonanza, Ahead of IPO

Paytm’s several senior executives are converting their employee stock options into shares before the digital payments major launches one of India’s biggest IPO later this year. However, the shares being transformed could be worth more than 600 crore based on the Noida-based company’s most recent valuation, says the sources close to advancements. Paytm was last valued at under 12 lakh crore, or $16 billion.

To facilitate this change over, Paytm is also working with lending companies to enable loans of around 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 would be charged on the difference between the current share price and the price at which the ESOPs were granted.

The person adds, “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.

Paytm has been issuing ESOPs for more than 12 years now and its shares are valued at around 18,000 presently. An employee who received ESOP grants at a price of 1,000 per share, would thus have to pay tax on the differential of Rs 17,000 based on their salary range.In terms of value, 80 percent 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 instance, Paytm has the option of raising about 2,000 crore in a pre-IPO round, however investors who put money in this round would 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,” he added.

Retention Tool 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. Firms like PhonePe, Udaan, Razorpay, Cred, Acko, Zerodha and Ola are among those to have approved 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.