I got this question from one of the readers yesterday. The State Bank of India’s Chairperson recently announced, that they were going to look at issuing shares with differential voting rights (hence the name DVR) to raise funds to meet the Basel-III capital adequacy norms.
Government has also clearly indicated that it won’t continue to fund Public Sector Banks indefinitely. And these banks now need to look after their own needs. I believe that it is easier said than done because any problem, which these banks face will eventually become the problem of the government – reason being that these banks are deeply woven into the fabric of Indian economy, and hence the government cannot have a hands-off approach with them. But nevertheless let’s believe the government for the time being. 🙂
The government has allowed these banks to raise up to Rs 1.60 lakh crore from markets by diluting government holding to 52% in phases – so as to meet Basel III norms, which come into effect from March 31, 2019. The norms are aimed at improving risk management and governance while raising the banking sector’s ability to absorb financial and economic stress.
So what exactly is this DVR creature?
So what exactly is this DVR creature?
What are DVRs?
Differential Voting Rights shares or as popularly known as DVRs, are a special category of shares issued by an already listed company to raise funds, with lower dilution of ownership when compared with issuance of normal shares.
Like ordinary shares, DVRs are also listed and traded on stock exchanges.
How are DVRs different from ordinary shares?
A DVR provides fewer voting rights to the shareholder than a normal share. While a normal shareholder generally has one vote per share held, a DVR shareholder needs to hold many more shares to get the right to ‘one’ vote.
One example of an Indian company having DVRs is Tata Motors. A normal shareholder of Tata Motors gets one vote for every share, whereas a holder of DVR shares gets one vote for every 10 shares held.
Companies generally compensate DVR shareholders with a higher dividend. A Tata Motors DVR has 5% extra dividend than normal shareholders as compensation for lower voting rights.
DVR generally trade at a discount to ordinary shares and Tata Motors has seen its DVRs historically quote at more than 30% discount to normal shares. I have written about the dual categories of shares of Tata Motors – Ordinary and DVR earlier too.
Is issuing DVR a common practice? Haven’t seen many in India.
Indian companies have somehow been averse to issuing DVRs. Apart from Tata Motors, very few have gone on to issue DVRs of their own – namely Gujarat NRE Coke, Jain Irrigation, etc. World over its a much more common practice and well known companies like Google, Berkshire Hathaway have dual categories of shares listed on exchanges.
Who can subscribe for DVR's ? The existing shareholder or new one also Please tell..
In case of Tata Motors DVR, the initial subscription in 2008 opened for regular shareholders (on record date) who had an option of buying 1 DVR for every 6 shares held. But post listing of DVRs on exchanges, the normal buying and selling of DVRs takes place, irrespective of whether buyer/seller hold ordinary shares or not.
This link on SEBI's website for Tata Motors DVR provides more details
http://www.sebi.gov.in/dp/tatamotorslof.pdf