Private equity firm Blackstone is seeking shareholder approval for an exit return incentive (ERI) plan that envisages to pay a compensation of 1-4% of the proceeds that Blackstone will generate from a future sale of its stake in Sona Comstar (Sona BLW Precision Forgings Ltd) to select executives of the company, the company said in annual general meeting notice to shareholders.
Blackstone holds a 34.18% stake in the auto component maker through an entity called Singapore VII Topco III PTE Ltd. The private equity firm had sold 31.48% stake worth ₹5,250 crore in the company’s IPO in June.
“Under the ERI Plan, Singapore VII proposes to give the identified employees cash payments from the proceeds it received/receives from a Disposition Event (Disposition Payments). These Disposition Payments may be made in three instalments, part at the time of the Disposition Event and then on the first and second anniversaries of Singapore VII’s complete disposition of its ownership in the Company, as per ERI Plan. Thus, through staggered long term payment structure the ERI Plan is expected to promote retention of the employees,” the AGM notice said. The AGM will be held on 9 September.
The amount of the cash awards made to the employees will depend on the multiple of the invested capital and returns realised by Singapore VII from the proceeds of the stake sale, it added.
“Subject to Singapore VII achieving the identified return thresholds and an upper cap, the indicative amount of cash awards for the eligible employees (collectively) may range between 1 % (one percent) and 4% (four percent) of the gross proceeds realized by Singapore VII across all Disposition Events. No payments will be made under the ERI Plan if the identified threshold returns are not satisfied in a Disposition Event,” the notice said.
“The payment of such cash awards is intended to be a gesture of appreciation and recognition towards the identified employees and their contribution to the growth of the company and the value which they create for all shareholders,” it added.
The company did not specify the number of employees covered under this plan.
As of today, Blackstone’s stake in the company is worth ₹10,000 crore, which at current prices will imply a payout of between ₹100 crore and ₹400 crore under the incentive plan. To be sure, the final number will depend on the eventual value achieved when Blackstone exits the company and the various conditions laid down under the plan.
Such exit-linked incentive plans are used by PE firms to attract top industry talent to their companies and ensure alignment of interests between the senior management and investors.
Last year, Blackstone had announced a similar plan for Essel Propack where select employees of Essel can make up to $89 million, or ₹672 crore, if Blackstone exits the firm at certain predefined return thresholds.
At the lower end of the targeted returns range, the total cash award could be as much as $22 million, while the maximum cash award under the incentive plan could be $89 million. To be sure, no pay-outs will be made under the ERI Plan if the identified threshold returns are not satisfied.
