Besides Flipkart, employees of Myntra and PhonePe will also be a part of the repurchase programme
BENGALURU: The board of Flipkart has approved a plan to repurchase employee stock options in a move that could benefit close to 6,000 current and former employees at India's largest online retailer, according to two people familiar with the development.
The share buyback plan marks the largest such programme till date in the Indian startup sector and offers stakeholders the biggest opportunity, so far, to liquidate their holdings in the country's most valuable startup. "The overall corpus reserved for buyback of shares from employees is over $100 million," said one of the people cited above.
The development comes after Flipkart successfully raised about $4 billion in financing this year from investors such as Japan's SoftBank Corporation and Chinese internet conglomerate Tencent.
Besides Flipkart, employees of subsidiaries like online fashion retailer Myntra and payments unit PhonePe will also be a part of the repurchase programme which is expected to close by December, sources said.
Employees will be allowed to sell a certain percentage of their vested shares under the programme, and a few senior former employees of the company could make "tens of crores", people aware of the plans told ET.
Flipkart's stock options are granted over a four-year period, with employees vesting them every month after the one-year threshold. Flipkart did not reply to queries from ET on the development.
In 2015, Flipkart had sold shares worth about `240 crore in its employee trust fund to high net-worth individuals for the first time in eight years, in order to provide liquidity for its employees. Liquidity was also generated through share buybacks, especially for Flipkart's early employees who had been with the company since 2010.
But a lot has changed since 2015. Flipkart went through a tough 2016, as the funding climate became tougher and the company went through multiple management changes as it battled an increasingly aggressive US-based rival Amazon.
In April, Flipkart announced a new round of funding which saw its valuation drop by about a third to $11.6 billion compared with $15.2-billion in 2015.
But the Bengaluru-based company said it will issue additional "differential esops" to employees to whom they were allotted when its valuation was higher to make up for the loss.
"It is not common practice to shield employees from a funding round that values a company lower than it was valued at earlier. That privilege is usually reserved for investors.... Of the few startups that have offered such grants, the norm has been to limit it to the topmost employees," Flipkart's group CEO Binny Bansal wrote in an email to employees in April.
Last year, the company had doubled the percentage of white-collar employees who were part of its esop programme to 35-40%. Flipkart had 15,000 white-collar employees at its peak in 2015, a number which now stands at about 8,000.
EMPLOYEE WEALTH
Esops are an avenue for companies to hire and retain critical talent but options to cash out are limited.
Employee wealth created by home-grown online companies in India is worth more than $1.5 billion since 2011, according to an ET report in December citing estimates from executive search firms Heidrick & Struggles and Longhouse Consulting.
It may have touched the 18,000-people mark, according to an estimate by talent acquisition firm CareerNet. But less than 5% of esop wealth created has been liquidated through private sale of employee stock, according to the report.
Earlier this year, about 47 employees of mobile wallet and online payments player Paytm sold shares worth about `100 crore to both internal and external buyers, ET reported. Paytm has over 500 employees who hold close to 4% shares in the parent company.
Besides Flipkart and Paytm, other players like cab-hailing application Ola and mobile advertising firm InMobi besides listed internet companies like MakeMyTrip and Info Edge have also generated liquidity for their employees.
Payments company Citrus Pay, which was acquired by bigger rival PayU for about `860 crore in 2016, saw 50 employees make money by selling their stock options.
