Home / Markets / Stock Markets /  Firms see Esop wealth erode amid market rout

MUMBAI : The wealth of corporate India’s top managers derived from employee stock ownership plan (Esop) has seen a massive erosion in value as the Covid-19 outbreak has pushed stock prices of companies to new lows, resulting in margin calls on loans availed to exercise these stock options.

The sharp fall in stock prices, coupled with pressure from lenders to bring in more collateral against these loans, has in some instances, led senior executives to sell these shares at depressed prices just to get the loans off their backs.

Employees can exercise Esops at a preset price, which is generally at a discount to the prevailing market price. These options can be exercised within a certain period. Depending on the quantum of options available to employees, market conditions and their personal finances, they tend to avail of loans from non-banks to help exercise the options.

Those who have sold shares to repay loans taken to exercise Esops include IDFC First Bank Ltd managing director (MD) and chief executive officer (CEO) V. Vaidyanathan, who, earlier this month, sold personal shares worth almost 93 crore to repay loans, and Shyam Srinivasan, MD and CEO of Federal Bank Ltd, who sold shares worth 43 crore.

“At senior levels, where the quantum of Esops is fairly high, people generally have to avail these loans as they may not have ready cash available," said Srikanth Subramanian, senior executive director at Kotak Wealth Management.

The impact will be more severe for managers of companies whose stocks are relatively more illiquid, he said. “In such cases, selling of a large quantum of shares by an employee can result in a further downward spiral in the stock price."

ABOUT THE AUTHOR

Swaraj Singh Dhanjal

" Based in Mumbai, Swaraj Singh Dhanjal is responsible for Mint’s corporate news coverage. For the past eight years he has been writing on the biggest deals in private equity, venture capital, IPO market and corporate mergers and acquisitions. An engineer and an MBA, he started his journalism career in 2014 with Mint. "
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