The term shares with differential voting rights (DVR) hogged the limelight after Tata Motors on July 25 announced the conversion of DVR shares into ordinary shares when it announced its June quarter results. The auto major said the holder on record will receive 7 fully paid-up Tata Motors shares for every 10 Tata Motors DVR (TTMT/A).
Tata Motors’ DVR shares were first issued in 2008 and subsequently in a further QIP in 2010 and rights issue in 2015. At present, shares of Tata Motors DVR are traded at a discount of nearly 35 per cent against the ordinary shares of Tata Motors Ltd.
Here is all you need to know about DVR shares:
Shares with differential voting rights offer either higher or lower voting rights than ordinary shares. However, other rights such as bonus shares, rights share issue are still available.
DVR shares are generally available at a discount against ordinary shares. For instance, Jain Irrigation DVR shares are trade at a 41 per cent discount against ordinary shares.
Shareholders of DVR shares may also get higher dividends compared with ordinary shareholders. For instance, Tata Motors DVR shareholders received a dividend of Rs 2.10 in July 2023 compared with a dividend of Rs 2 received by ordinary shareholders of Tata Motors.
Such shares are issued when companies need capital to grow and expand their business. According to Angel One, the founders and main stakeholders have to reach out to potential shareholders who would be willing to invest in the company. But this also means diluting power and giving away some of the control.
“DVR shares help companies protect their interest while enabling them to raise that additional capital required to keep the business going. So, issuing DVR shares is a brilliant solution for getting investors who are looking for investments but don’t want to participate in the workings of the business. The company can also control how many voting rights they want to give away. DVR shares also provide a safeguard against hostile takeovers. Without voting rights, shareholders can’t gain a majority and challenge to take over the control of the company,” Angel One said in a blog.
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