Information on IFC Investment in APPL and Employee Share Ownership Program
When IFC invested in APPL in 2009, the tea industry in India was undergoing deep restructuring, with major producers exiting the plantation business. IFC saw an opportunity to secure employment for over 30,000 permanent workers and to work with a long-term partner committed to adopting higher standards for labor and environmental conditions in an industry where few operators demonstrate interest or capacity in promoting sustainability.
IFC chose to invest and support the creation of an employee share plan to sustain employment at Tata Group’s tea plantations in 2009 – these plantations then became known as the Amalgamated Plantations Private Ltd.
An important component of IFC’s engagement has been to empower employees by making them stronger stakeholders. However, despite investing in common equity for its own account, IFC was conscious that the employee share ownership program (“ESOP”) needed to have a higher level of protection for employee interests.
While IFC took the equity risk for itself, through its initial investment in 2009 (and subsequent rights issue in January 2014), it worked with APPL to ensure that for their equity participation, the employees were provided protection of capital as well as a minimum guaranteed return for a significant period of four years.
IFC’s support enabled the ESOP to have the following protections and benefits:
Rather than have employees take equity risk in APPL when it was freshly divested out of Tata Tea, employees were provided the opportunity to invest through Compulsorily Convertible Cumulative Participatory Preference Shares (“CCCPPSs”), with principal protection and guaranteed dividends of 6% per annum for 4 years.
The CCCPPSs bought by employees were offered at INR 10 per share. In June 2013, each share was assigned a fair value of INR 27 following an audit by a reputable consulting firm.
In addition to the principal protection and equity gains, the CCCPPS holders have received the same dividend as common shareholders, an average rate 10 percent per annum in the last 4 years, well above the minimum guaranteed 6 percent.
To enable the employees to subscribe, APPL arranged loans from local banks payable over seven years, on which APPL bears the interest cost.
The employees have similar exit rights as IFC.
Further, a trust has been formed to ensure that employees leaving the company (or the families of those dying while in service) are provided an exit at a valuation performed yearly by a reputable consulting firm.
Given the low level of awareness and literacy in a significant percentage of the employees. IFC took a number of steps during the design and roll out of the ESOP, including:
organizing stakeholder consultations during the ESOP design phase with representatives of estates and workers;
conducting 54 trainings at ten centers covering all 20 estates in Assam to educate the employees on the benefits and risks of share ownership; and
holding follow-on trainings a year later, at four tea estates in Assam on the subject of “Financial Literacy and Savings”.
These efforts were in addition to actions taken by APPL to communicate with the workers.