Superior voting right & Board Games

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 Article 5: SVR, DVR, Source: economic times, the Hindu business line 

  • Superior voting right (SVR): These special shares have a higher voting power than ordinary shares. 
  • Generally, any promoter grows its business with hard work and dedication. At some point promoter needed to raise funds to expand the business. To expand the business, the promoter will take either debt or dilute its stake in the business. The risk here is if the promoter dilutes its stake more to expand, he/she may lose control of the company that he/she has built over time.
  • Many incidents have happened in the past that due to dilution of the stake, promoters have been kicked out of the company as they lost control.
  • To overcome such instances, the concept of DVR/SVR has been introduced. In short, the company is owned by others and controlled by others. This can be a bad thing for capital providers also. There is a risk in everything.
  • The startup founder retained these SVR to keep control.
  • Some companies tried to lobby SEBI to allow ownership through trust as the promoter would be the main beneficiary since the promoter holds the major voting right and is accessible to major tax pay.
  • Allowing this could create an opaque structure in the sense that here beneficiary is can change as the visibility of the trust’s beneficiary details are not publicly available. Hence it could give rise to shenanigans.

Article 6: board games, Source: economic times

  • Because of the promoter-investor brawl, Padmaja Reddy, managing director of the microfinance lender Spandana Sphoorty resigns.
  • The reason is, its major holding(45%) investor Kedara capital wants to sell Spandana Sphoorty at a throw-away price.
  • The question here is why would Kedaara capital be willing to sell at a throw-away price. One possible scenario would be, for Kedaara Capitals, selling Spandana Sphoorty to Axis may not be a big deal as they are might get something valuable in return. Like you lose some and win big. But for Padmaja Reddy, it is a big deal. 
  • Another possible scenario would be, Kedaara’s investors asking for money back therefore Kedaara has to sell it at a throwaway price. As everyone has a limited amount of time and money, Kedaara has no choice but to sell. Or could be a revenge.
  • Board has accepted her resignation with immediate effect.
  • A decade ago, the same thing had happened with SKS microfinance founder Vikram Akula.
  • Padmaja Reddy also mentioned that other MFIs have acquired at 4x, 3x book value multiples but Kedaara wanted to sell at 1.6x book value multiples, which is valued at 700rupees/share.
  • A decade ago, Spandana went through an MFI crisis in Andhra Pradesh. To regain its financial health, Spandana recast its loan program. It had a portfolio of 1000 crore immediately after existing debt restructuring.                                                                                                                  Board games | FinnacleShahClasses 

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