No reserved shares, discounts for employees in Hyundai India IPO
In contrast, LIC, in its Rs 21,000 crore-IPO in 2022 — the largest to date — had reserved 1% of the issue for its employees besides offering Rs 45 discount per equity share. (Reuters)
Hyundai Motor India’s (HMIL’s) public issue is set to become the country’s largest initial public offering (IPO) upon its successful listing. However, unlike in many major public offerings, HMIL has not reserved any shares for its nearly 5,500 employees or provided discounts.
According to HMIL’s draft red herring prospectus (DRHP), filed with Sebi last week, the public issue entails an offer for sale of 142.2 million equity shares at Rs 10 each, representing a 17.5% stake dilution by promoter Hyundai Motor. HMIL has allocated 50% of the issue for qualified institutional buyers (QIBs) (including anchor investors), 35% for retail investors, and the remainder for non-institutional investors.
In contrast, LIC, in its Rs 21,000 crore-IPO in 2022 — the largest to date — had reserved 1% of the issue for its employees besides offering Rs 45 discount per equity share. Similarly, Coal India, General Insurance Corporation, and SBI Cards had either offered their employees discounts in the issue price or reserved a small portion for them.
While it’s common for public sector companies to reserve portions for employees, newer companies incentivise staff through employee stock ownership plans (ESOPs). These schemes grant employees shares of the company to build a sense of ownership and offer long-term benefits, including from public listings.
For instance, Paytm’s Rs 18,300 crore public issue, India’s third-largest IPO till date, did not reserve any portion for its employees. However, the fintech giant had two ESOP schemes for staff and key managerial personnel before going public.
HMIL did not respond to a detailed email sent by FE. However, the company in its DRHP has it currently has no ESOP schemes in place.
Amit Tandon, founder and MD of proxy advisory firm IiAS, said private firms and tech companies often provide ESOPs linked to market performance to incentivise employees. He said some firms introduce ESOP plans post-IPO, especially for senior management, aligning their incentives with company growth.
As per Sebi guidelines, a minimum of 50% of an IPO must be reserved for QIBs, while retail investors typically receive 10-35%.
“Reservation for employees should not exceed 5% of paid-up capital after the issue. However, employees have not fully utilised this opportunity in many past cases,” said VK Vijayakumar, chief investment strategist, Geojit Financial Services.
He said Coal India’s Rs 15,199 crore IPO in 2010 wasn’t fully subscribed due to trade union protests.
Similarly, Zomato’s Rs 9,375 crore IPO in 2021 saw relatively low employee subscription, with only 62% of the 6.5 million shares reserved were subscribed by Zomato employees, while QIB and non-institutional investor portions were oversubscribed.
Experts say aggressive stock pricing and post-listing underperformance can breed employee resentment, prompting many firms to avoid reserving portions for staff. As one expert puts it, “It’s the reason why you don’t sell anything to your wife.”
For instance, LIC shares debuted at an 8% discount to their Rs 949 issue price and continued trading at over a 40% discount even a year after its listing before staging a recovery. Similarly, One97 Communications, the parent company of Paytm, currently trades at an 80% discount to its issue price of Rs 2,150. The shares have not touched its listing price since its IPO in November 2021.
Among major upcoming IPOs, Ola Electric’s Rs 5,500 crore issuance has reserved a portion for employees, although the number of shares or percentage reserved have not been disclosed. “Eligible employees bidding in the employee reservation portion can bid up to a bid amount of Rs 500,000,” its DRHP said.
Shriram Subramanian, founder and MD of InGovern Research Services, said from a regulatory or governance perspective, there’s no necessity for companies to reserve IPO portions for employees. “If employees truly desire, they can apply through retail or HNI quotas or buy them in the secondary markets.”