“More than preventing issue of fresh shares with superior rights, the amendment is about allowing firms to come out with shares with inferior rights,” said SMC Capitals equity head Jagannadham Thunuguntla.

1. Change in listing norms to protect minority shareholders
Press Trust of India
Monday, July 27, 2009 (Mumbai)
MUMBAI: SEBI’s amendment of regulations to prohibit companies from issuing fresh shares with superior
rights vis-à-vis the rights of existing shareholders seems to have been taken in the light of experiences
abroad. Last week’s change to the equity listing agreement, at first glance, seems to protect the interests
of minority shareholders.
Sebi’s step will prevent situations wherein companies come out with follow-on issues, rights issues or
preferential allotments with higher voting rights per share, helping promoters get greater control in the
company. Though a rarity in India, there are many examples abroad such as the Ford family, which
controls 40% of shareholder votes with only about 4% of the equity in Ford Motors.
It’s not that the amendment by Sebi last Wednesday sealed such a possibility in India as US stock
exchanges, NYSE or Nasdaq, too, do not allow it.
NYSE allows firms to list dual-class voting shares, but once listed, firms cannot reduce the voting rights of
the existing shares or issue a new class of superior voting shares. So, a second look at Sebi’s
amendment shows something else. “More than preventing issue of fresh shares with superior rights, the
amendment is about allowing firms to come out with shares with inferior rights,” said SMC Capitals
equity head Jagannadham Thunuguntla.
According to Sebi norms, firms can come up with fresh issues that offer inferior voting rights or dividend,
thereby helping raise equity without resorting to debt and giving up control. In times of global financial
crisis, Sebi’s move is seen as “visionary” by Mr Thunuguntla. The move would encourage promoters to
raise additional equity without worrying about takeovers.
While to date the market has given a thumbs down to DVR shares in India, the success of the dual-class
stock structure will largely depend on the perception of the market.
Market experts say there may not be many takers for DVR shares, as it is feared that dual-class shares
can result in poor corporate governance as they bifurcate control from taking on financial risk.