The Centre may allow public sector undertakings (PSUs) to issue differential voting rights shares (DVRSs), in a bid to help these firms raise the much-needed equity capital, even as the government stake in them is kept at 51% or above. While investors across spectrum may use the DVRS route to boost their dividend income, the government itself may receive bonus DVRSs which it could monetise later to boost its non-debt capital receipts.
A clutch of highly leveraged firms in which government stakes are only marginally above the 51% threshold required to retain their PSU status could issue DVRSs to raise fresh equity capital. Those of them with a track record of offering liberal dividends would find the route more viable (see chart). “Many long-term investors are not interested in voting rights but in dividends. The government will issue a issue a circular soon asking the PSUs to use the (DVRS) tool,” an official said.
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The PSUs could also be allowed to use the DVRS route to raise fresh capital via rights issues to existing shareholders; as for the government, the DVR stakes acquired in the form of rights issues could be later sold in the open market.
According to sources, the Centre’s move coincides with the market regulator Sebi’s decision to restructure the DVRS norms, a step that could ease issuance of these shares. On March 20, the Sebi issued a draft framework on issue of DVRSs — those with fractional or superior voting rights — and proposed to allow companies to assign higher dividends to fractional voting rights DVRSs, which are often issued at a discount to ordinary shares.
Currently, the law does permit the issue of DVR shares but with several restrictions. In July 2009, the Sebi had prohibited issue of shares with superior voting/dividend rights than existing shares. As a result, DVRS have been largely unsuccessful. Tata Motors, Future Enterprises and Gujarat NRE Coke are among the five-odd companies which have issued DVRS in the past. While each ordinary equity share carries one vote, DVRS variants could carry voting rights much less, even a tenth of an ordinary share.