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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".

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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.

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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)

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Creativity, Not In Business For Indian Fashion

As his fraternity scales up brands and diversifies its product ranges, designer Rocky S sits pretty – he broke that ground years ago

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fashion, Indian, international, business
Santa Fe Indian Market Fashion show 2014. Wikimedia Commons

As his fraternity scales up brands and diversifies its product ranges, designer Rocky S sits pretty – he broke that ground years ago. The designer insists that creativity is always serious business.

“I diversified my product range and brand almost five years ago. The Rocky S brand has a high street label called ‘RS’ and I tied up with Shoppers Stop for retail in its over 60 stores across the country. Everything is under Rs 2,000. I also have a perfume line, a furniture line and I have also launched my own resto-bar,” said the designer.

Asked whether he is also looking to scale up the Rocky S brand, he said, “I’m always looking at the possibility for new things, one of which is to establish my brand internationally. But for that I need to build the brand to the level, where I can engage with an investor, a partner who knows the international space and can spearhead the collaboration, leaving me to do the creative work. I do believe there is a right time and a place for everything, and when my time for an international collaboration comes, I will make the best of it.”

fashion, Indian, international, business
A model wears a Naga costume designed by Thunyatorn Ng at New York Fashion Week 2018. (VOA)

At the moment, the designer, who has dressed the likes of Beyoncé, Paris Hilton and the Pussycat Dolls, is gearing up for his seventh showcase at the prestigious London Fashion Week. And his collection is inspired from a royal Bougainvillea garden with summery colours such as fuschia, hot pink, dusky orange and a hint of the dark side with hues like black, grey and ivory. “The style is easy with loose trousers, anti-fit shirt, flirty dresses,” he said.

Rocky S reveals that his decision to focus on the London Fashion Week was driven by the need to focus on the business of fashion, without getting bogged down with the business of celebrity influencers and paid partnerships.

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“I realised long back that creativity is not at the forefront of fashion in India. Much of fashion week today is about influencers and celebrity collaborations. Actors dictate fashion, the media loves to add and promote the frenzy. That’s one of the reasons why I prefer the London platform, it looks at trends for the upcoming season, setting the tone and the tempo. It’s not following trends or only about who is wearing you clothes,” explained the designer.

So while influencers and paid partnerships might be the big game right now, the designer insists that creativity is always serious business. (IANS)