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Experts welcome Sebi's new DVR framework for tech companies to list

Updated : June 27, 2019 08:15 PM IST

Markets watchdog Sebi on Thursday issued a new framework for issuing differential voting right shares by tech companies, effective July 1 and tightened the norms for disclosing the details of pledged shares by promoters.

Read here: Sebi approves DVR shares for tech startups, amends royalty payment norms

Bhavish Aggarwal, co-founder and chief executive of Ola, welcomed Sebi's move to allow differential voting rights for Indian tech companies, "I‘m certain this will encourage Indian companies to list within the country, backed by our own people. Made in India businesses and entrepreneurs can control their destiny and build for the world."

Read here: Sebi board meet highlights: New DVR framework, tightens norms for mutual funds, pledged shares

Calling markets regulator's decision on disclosure norms for pledged shares as a step in the right direction, JN Gupta, former executive director at Sebi, said, “It may not be 100 percent sufficient, but it is a beginning.”

"When we pledge shares, the voting rights remain with the promoter or the person who is pledging where the risk passes on to the lender. So, you have a control or voting right without corresponding economic risk,” Gupta said.

"If somebody has raised a loan for the company, then it indicates the positive intent of the person as he feels that he is exposing himself further to the company. Whereas if you take money out and invest somewhere else, then that means you are diluting your interest as far as economic interest is concerned," he added.

Founder of Thinking Legal, Vaneesa Agrawal, welcomed Sebi’s approval of differential voting rights and said it’s a positive step especially for technology companies and will be very useful going forward.

"There is a lot of investor interest in India now and the voting power in US companies like Facebook and Google is much higher with the founders, whereas in Indian companies, promoters have to give up a lot of stakes to attract investors," he said.

According to Agrawal, companies will be able to have differential voting rights even after they get listed and it will give more power to the promoters over their companies.

Hailing Sebi’s tightening of rules for disclosure of pledged shares by promoters, Amit Tandon, founder and managing director of IiAS, said it has caused a great deal of anxiety to the market and led to a great deal of volatility.

"Even in instances when disclosures have been made to the market, investors have not paid sufficient heed to that. Right now, investors are going to pay more attention to these kinds of disclosures. We have seen promoters lose hold of companies or even if you have not lost control of companies, you had to let go a significant chunk of your holding. Also, very recently we have seen that happen in Emami," Tandon said.
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