India allows weighted voting rights in domestic IPOs

The absence of a weighted voting right or dual-class share system has restricted the size of new offerings because key shareholders don't want to see excessive dilution of their stakes. Most private equity firms are issued common shares that hold the same voting rights as stock held by the founder or promoter.

According to an update to the Securities Contracts legislation issued by India’s Ministry of Finance, shares that have higher or lower voting rights than common shares can now be listed on the Indian stock exchanges. Further, there will be no minimum requirement - by the number of shares or monetary value - for the amount that needs to be listed in an IPO.

The amendment comes eight months after the Securities & Exchange Board of India (SEBI) drew up a framework for the updated rules. It follows a precedent set by other markets in making it easier for founders of technology companies to retain control despite diluting their holdings below 50%.

Hong Kong introduced the reform - for companies that meet certain requirements - in 2018 and duly attracted listings by the likes of smart phone maker Xiaomi and online-to-offline services platform Meituan Dianping. Mainland China subsequently took a similar approach when launching its technology innovation board, known as the Star Market.

Following a three-month public consultation process, SEBI had said that superior voting shares would need to be held for at least six months prior to the filing of the red herring prospectus. Also, the total value of such shares cannot exceed INR5 billion ($66.1 million) nor can the voting rights be more than 10 times greater than common shares. It further stated there can only be one class of superior voting shares, suggesting a dual-class regime. However, it is unclear if and when these guidelines will be put into practice.

As in other markets, there has been some opposition to the reform from corporate governance advocates. Many proponents of the "one share, one vote" regime have suggested that regulators enforce a sunset provision or the eventual phasing out of superior voting rights over time.

Separately, SEBI has also relaxed deadlines for a number of procedures related to regulatory compliance due to the adverse economic impact of the coronavirus pandemic.

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• Topics
• South Asia
• Regulation
• regulation
• SEBI
• India
• IPO