The new shares called Class B shares will get 5 per cent more dividend than ordinary shares and would be entitled to one vote for every 10 held.
Pantaloon will be among the first companies to offer such a financial instrument in India. Some of the global companies that have issued shares with differential voting rights include Berkshire Hathaway, Google and News Corp.
The record date will be fixed after the necessary approvals are obtained by the company, Pantaloon said in a release.
Explaining the rationale behind the initiative, Pantaloon Managing Director Kishore Biyani said that differential voting rights (DVRs) have become a widely-used innovative instrument in global markets and, by coupling a bonus issue with a DVR, the company is offering another alternative to its shareholders.
“DVRs meet the different requirements of different shareholder groups and, with this issuance, we will be introducing a new financial instrument for the new economy,” he said. Enam Securities is the advisor to Pantaloon Retail to this issuance.
Under the Companies Act, a firm that has been profitable for three years and which has no default record in filing annual accounts and returns can issue shares with DVRs.
The issue has to be approved by shareholders and should not exceed 25 per cent of the total share capital issued. Further, family-owned businesses can issue shares with DVRs to members of their family.
Experts said DVRs can arm promoters with a minority holding in their companies with a potent tool to fight hostile takeovers. However, grey areas in Indian laws have dissuaded promoters from using DVRs.
Already, a case involving Karamjit Jaiswal and his company LP Jaiswal & Sons of Jagatjit Industries and his step-brothers Anand Jaiswal and Jagajit Jaiswal has reached before the Company Law Board over the use of DVRs in 2004. LP Jaiswal & Sons subscribed to 2.5 million shares in Jagatjit Industries, increasing its stake to 19.1 per cent from 15 per cent.
However, each of these 2.5 million shares carried 20 voting rights. Karamjit Jaiswal later bought 2.19 million ordinary shares, increasing his stake to 13 per cent from 8.59 per cent.
With this, he and LP Jaiswal together owned a combined 32.1 per cent in Jagatjit Industries. However, because of the DVRs of the shares acquired by LP Jaiswal & Sons, this minority holding translated into voting rights of 62 per cent, giving Karamjit Jaiswal complete control over the company allowing him to fend off a hostile takeover bid from his step-brothers.Courtesy: business-standard.com