Blackstone seeks shareholder approval to pay part of exit proceeds to Sona execs
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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 the PE company will generate from a future sale of its stake in Sona Comstar (Sona BLW Precision Forgings Ltd) to select executives of the company, the firm said in an 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 Rs 5,250 crore in the company’s initial public offering (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% and 4% of the gross proceeds realised 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 company did not specify the number of employees covered under this plan.

As of today, Blackstone’s stake in the company is worth Rs 10,000 crore, which at current prices will imply a payout of between Rs 100 crore and Rs 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 can make up to $89 million, or Rs 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.

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