DVRs dance! Differential voting right shares in S&P BSE Benchmark Indices now

Differential Voting Right Shares (DVRs) are similar to common equity (ordinary) shares listed and traded on the stock exchange; except in respect of dividend and voting rights.

Feb 19, 2015 09:02 IST India Infoline News Service

Stock-Market
In a move that will help benefit the investors, S&P BSE Indices yesterday announced rules for considering differential voting rights shares(DVR’s) in S&P BSE Benchmark Indices namely S&P BSE SENSEX, S&P BSE 100, S&P BSE 200 and S&P BSE 500. These will be effective  with the upcoming rebalance in June, 2015.

Differential Voting Right Shares (DVRs) are similar to common equity (ordinary) shares listed and traded on the stock exchange; except in respect of dividend and voting rights. Companies generally compensate DVRs investors with higher dividends. It is observed that DVRs are mostly traded at a discount due to lesser voting rights offered, as compared with common equity shares. This allows an opportunity to the investors’ to earn higher returns in lieu of surrendering their voting rights and also allows companies’ to raise funds without diluting (in the same proportion as it would, if they were common shares) promoters’ stake.

The following set of criteria would be applicable for the DVRs.

At Rebalance

Inclusion Criteria
  • DVR share class is eligible for inclusion in the above mentioned indices if ordinary share class is part of the new index portfolio.
  • DVR shares outstanding should be 10% or more of the total shares outstanding (inclusive of ordinary shares and DVR share class) of the company.
  • DVR's will be analyzed independently for inclusion provided it meets inclusion criteria for the respective index
Exclusion Criteria
  • If the ordinary share class is dropped from the index, the DVR's will also be dropped from the index
  • Exclusion Criteria same as the respective index
In between Rebalance

Inclusion Criteria
  • DVR share class is eligible for inclusion if ordinary share class of the particular stock is included in the index in between rebalance
  • DVR shares outstanding should be 10% or more of the total shares outstanding (inclusive of ordinary shares and DVR share class) of the company.
  • DVR of the ordinary stock that is included in the index, will be analyzed independently for inclusion provided it meets inclusion criteria for the respective index.
Exclusion Criteria
  • If the ordinary share class is dropped from the index on account of any corporate action, the DVR will also be dropped from the index.
There are four DVRs in the market at present. They are Tata Motors, Jain Irrigation, Gujarat NRE Coke and Pantaloon Retail DVRs. Apart from Tata Motors', the rest of the three have not seen much interest from the investors, as their ordinary shares too does not elicit high demand.

Currently, Tata Motors DVR is trading at 7.76% up from its previous close of Rs. 350.50, at Rs. 377.70. Jain Irrigation Systems' DVR has surged 13.92% from its previous close of Rs. 47.40 to a share price of Rs. 54.00. Gujarat NRE Coke Ltd is trading up by 9.89% at Rs. 3.00.

Globally, DVRs trade at a 30-35 per cent discount to their ordinary shares, while in India, they trade at a discount of 50-60 per cent. This move by the BSE is expected to create a fresh demand of DVRs in the companies. 

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