Sunday January 26, 2020
Home Business DVRs to Creat...

DVRs to Create Indian Enterprises that Have Capital Structure Stability to Truly Compete Globally

The impact of the changes in DVRs is much beyond just businesses termed as "tech-businesses".

0
//
DVRs, Indian, Enterprises
The demarcation between control and capital is one that can unleash the next phase of entrepreneurial activity in this country. Pixabay

The recent decision by the Ministry of Corporate Affairs (MCA) to amend the Companies Act and raise the cap on differential voting rights (DVRs) to 74 per cent has ramifications much beyond just the technology industry in India. The demarcation between control and capital is one that can unleash the next phase of entrepreneurial activity in this country.

The impact of the changes in DVRs is much beyond just businesses termed as “tech-businesses”. The changes allow a variety of entrepreneurs to benefit by accessing capital that can help boost businesses. While tech-businesses in capital intensive sectors will get a boost, so will entrepreneurs in other industries ranging from industrials to pharmaceutical research. The critical component is that the new regulation will allow an entrepreneur to marry their operational and entrepreneurial skills with the capital of a large investor, without necessarily having to part with significant control.

Additionally, entrepreneurs with substantial capacity to generate value through aggregating businesses in fragmented industries through a platform structure will also be able to utilise the higher cap on DVRs to create platforms that can generate value for all. Such platforms are applicable across sectors, where financial and operational inefficiencies exist.

The new rules regarding DVRs attempt at resolving the excessive debt dependence that Indian businesses have been vulnerable to, in the past, especially the reliance on bank loans. Reliance on bank loans was in part driven by a nascent corporate bond market and related factors that made bank loans a more attractive proposition for credit and in some cases, perhaps the only available option. On the other hand, the excessive dependence on debt by Indian companies was also driven by the need to avoid dilution of control that is a necessary concomitant of equity-based funding.

DVRs, Indian, Enterprises
The recent decision by the Ministry of Corporate Affairs (MCA) to amend the Companies Act and raise the cap on differential voting rights (DVRs) to 74 per cent has ramifications much beyond just the technology industry in India. Pixabay

DVRs will allow firms to create more efficient capital structures by avoiding excessive leverage, a strategy wrongly used to prevent equity dilution in the past. The new DVR rules should be implemented for both private and publicly listed companies, to help shore up the capital structure regime in India. Critics of DVRs have pointed out that there are corporate governance issues concerning DVRs, whereby superior voting rights may lead to lower compliance standards. It is essential to differentiate between the various implications of a policy. The aim must be to improve corporate governance standards across the spectrum, but the benefits of DVRs in terms of allowing flexibility for entrepreneurs to push for capital, while still driving the company forward must not be underestimated.

Essentially, to state the obvious, the market must price an asset for the value delivered. In layman terms, if a shareholder with a share that has lesser control versus the shares held by a founder, then the shareholder needs to demand a higher return. Correct pricing of an asset relative to its risk is an issue that is applicable across asset classes. The question the investors must ask is how will the entrepreneur or the business compensate us for the fact that we own a share that has lesser voting rights? The question regulators must ask is how do we ensure that the regime and regulations that allow businesses to compensate shareholders with lesser rights are implemented effectively? DVRs can deliver value when the different stakeholders ask the right questions. Efficient financial markets will ensure that the stakeholders can all generate the maximum value for themselves.

In an Indian context, DVR rules are especially crucial for privately held companies operating in industries that aren’t structurally built for being publicly listed. Public listing isn’t necessarily a precursor for large-scale growth. For instance, infrastructure businesses that generate value through long-term targets need not be under the constant glare of quarterly results that is a necessary concomitant of being a publicly-traded company.

Primarily, businesses that have an asset profile that is long-dated with lumpy payment schedules, will struggle in the public domain. Mind you; such companies deliver all the requirements that one expects from a business of investments, job creation, paying taxes and engaging in impactful CSR activities. DVRs have a significant role to play in providing such industries access to capital.

Also Read- Hawaii Islands’ Highest Peak, Mauna Kea, Best Place for World’s Largest Telescope

As India needs to both boost growth and create capital markets that generate value for all stakeholders, innovation such as DVRs is essential. As with all policies, effective implementation of DVR policy is as important as the content in the policy per se. DVRs have the potential to create Indian enterprises that have the capital structure stability to truly compete globally. (IANS)

Next Story

5G Network- The Future of Digital India

5G will drive edge computing, IoT in India in 2020

0
5G network
Many Indian enterprises have adopted 5G network due to its convenience. Pixabay

With more and more Indian enterprises striving to go digital, the increased speed and bandwidth of 5G networks will drive a new round of transformation across India from next year, industry leaders said on Thursday.

There will be a shift of computing to the edge, as India’s businesses take advantage of the benefits of cloud and hyper-converged infrastructure to deal with increasing data gravity.

“With legacy three-tier architectures already struggling to cope with high volumes of data generated by today’s enterprises, 5G will be the catalyst that drives edge computing and IoT,” Balakrishnan Anantharaman, VP and MD-Sales, India and SAARC, Nutanix, told IANS.

“As increased speed and bandwidth reduce the gap between wifi and cellular devices — edge computing will come into a realm of its own,” he added. The Indian IoT market is expected to touch $9 billion by 2020 across sectors such as telecom, health, vehicles and homes, among others.

It is emerging as the next big thing to become a $300 billion global industry by 2020 and India is all set to capture at least 20 per cent market share in the next five years, according to a Nasscom report.

5G
The advent of 5G is what AI-driven IoT has been waiting for. Pixabay

Sai Pratyush, Additional Vice President, Product Marketing-ICS, Tata Teleservices Limited (TTSL) said that in the enterprise segment, they are witnessing a significant growth in the adoption of new-age technologies such as IoT, AI and Cloud across industries.

“IoT especially, is viewed as a key enabler driving digital transformation to unlock operational efficiencies. AI, coupled with ubiquitous connectivity, is enabling exponential value being generated by IoT. AI is seeing large scale adoption by enterprises owing to its power to aid automation, speed and better decision making,” Pratyush elaborated.

The ‘Edge’ continues to evolve — with many working hard to define exactly what it is and where it exists. As the advent of 5G makes AI-driven IoT a reality, edge computing environments are primed to become even more disruptive than cloud was.

“The advent of 5G is what AI-driven IoT has been waiting for. 2020 will see many players in the technology industry and business community invest in building edge-computing environments to support the reality of AI-driven IoT,” said Atish Gude, NetApp’s Chief Strategy Officer. The “Edge” continues to evolve — with many working hard to define exactly what it is and where it exists.

Also Read- Scientists to Develop a Brain-Like Memory Device

“Once limited to IoT, it’s hard to find any systems, applications, services — people and places — that aren’t connected. The edge is emerging in many places and it’s going to expand with enterprise organisations leading the way, delivering the IT infrastructure to support it,” stressed Alok Ohrie, President and Managing Director, Dell Technologies, India. (IANS)