Second letter to SEBI on DVR shares framework


Today ACGA sent a follow-up letter to the Securities and Exchange board of India (SEBI) on differential voting rights (DVRs) or dual-class shares. We had initially responded to SEBI’s consultation on the subject in May and following its approval of a new DVR framework on 27 June, ACGA wanted to continue the dialogue, especially in light of murmurs that companies other than tech wanted to be able to adopt dual-class shares. We noted that the regulator had taken note of market concerns regarding sunset clauses, closing a loophole that would have allowed companies to extend such clauses indefinitely by ensuring that it could only be extended once upon shareholder approval. Plus the framework only allows tech companies to use the framework at the moment. 

We also provided SEBI with some information on how dual-class shares were being used in the Asia-Pacific region, specifically Hong Kong, Singapore and China, and in the US, as well as investor attitudes towards such structures. We noted that appetite by new issuers in both Hong Kong and Singapore is very low, with none in Singapore and only three so far in Hong Kong since the structure was approved last year. China has only launched the SSE STAR Market, which allows dual-class, in June 2019 and has one company waiting in the wings to be listed with such a structure. While we stated that it was too early to draw firm conclusions about the future of dual-class shares in these markets, it was evident that most companies seem to see no reason to abandon the one-share-one-vote structure.

We also talked about investors’ disquiet, especially in the US market where dual-class shares has been in play for a number of years: Uber had to abandon its dual-class structure at pre-IPO stage in order to secure funding in 2017, while We company completely collapsed in September 2019 and was forced to postpone its proposed IPO. Investors had been strongly opposed to We’s corporate governance practices, mainly due to the disproportionate voting power of the company’s co-founder and then CEO. We also raised the fact that such concerns about dual-class shares were not confined to a company’s pre-IPO life in the US.

Please click here to download the letter.