IiAS has raised two questions over Sharma’s eligibility for receiving Esops — whether he meets the definition of a promoter of the company under Sebi’s rules, and if his aggregate shareholding, including both direct and indirect, is less than 10%.
In its note, IiAS has pointed out that even though Paytm’s parent company One 97 Communications Ltd doesn’t categorise Sharma as a promoter, the provisions in the company’s Articles of Association give him rights that are typically seen in more traditional companies for their promoter families. These include possible permanency on the company’s board, it said.
“Paytm granted Vijay Shekhar Sharma 21 million stock options in FY22 (larger than the size of the buyback announced on December 13, 2022). These stock options can be exercised at Rs 9 per share: the fair value of stock options granted aggregates about Rs 3,960 crore ($495 million), which is higher than the compensation of all of S&P BSE Sensex CEOs put together,” IiAS said.
“There is no public disclosure on the rationale for such a grant, whether this will be a one-time grant, and whether Vijay Shekhar Sharma will receive more stock option grants in the future,” it added.
On the issue of Sharma’s shareholding, IiAS cited the Companies (Share Capital and Debentures) Rules, 2014 under the Companies Act, which state that Esops cannot be granted to a director of the company who holds more than 10% in the company directly or indirectly — through self, a relative, or a corporate body.
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The proxy advisory firm also pointed out that Paytm’s red herring prospectus shows that prior the company’s IPO in 2021, Sharma reduced his shareholding by 30.97 million shares, and Axis Trustee Services Ltd, acting on behalf of the Sharma Family Trust, acquired 30.97 million shares of the company.
“As a result, his direct equity shareholding at the time of the IPO reduced to 9.1% (well below his 14.7% equity a year ago),” it said. Together with Axis Trustee Services Ltd, on behalf of the Sharma Family Trust, he holds almost 14% stake in One 97 Communications.
“Sebi needs to consider if Vijay Shekhar Sharma’s direct equity and that held on behalf of Sharma Family Trust ought to be aggregated to test for compliance with the 10% threshold set out in both, under Indian regulations and Paytm’s Esop scheme,” it added.
Paytm did not answer ET’s queries on the IiAS note.
In August 2022,
IiAS had advised shareholders of One 97 Communications to vote against the reappointment of Sharma as its chief executive, and his remuneration.
At the time, IiAS had flagged that Paytm’s shares had fallen 63% from the issue price of Rs 2,150 per share, resulting in wealth destruction for shareholders. On Friday, the company’s shares ended at Rs 550.70, almost 75% down from its IPO price.
Later that month,
the company said that 99.67% of its shareholders who voted on the resolution at its annual general meeting approved reappointment of Sharma as managing director of the company for five years from December 19, 2022 until December 18, 2027.
Last month,
the board of One 97 Communications approved buyback of shares worth up to Rs 850 crore at a maximum price of Rs 810 apiece via the open market route. Through the process, Paytm plans to buy back 10.49 million shares, which represent approximately 1.62% of its paid-up share capital, as of FY22-end.
In addition to questioning Paytm’s Esop scheme, IiAS said that “several founders may be playing the regulatory arbitrage between the rights akin to a promoter versus the financial gains of not being classified as one”.
“Regulations need to catch up to these structures,” the proxy advisory firm noted.
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