Hi,

I heard the word "DVR Shares" from Tata Motors Thread....

What is the DVR Shares? How it's differentiate from Ordinary shares and Preference shares????

Thanks in advance...

As the name suggest, DVR shares have different voting rights compared to ordinary shares.

e.g. Tata Motors' DVR share will have only 10% voting right compared to its ordinary share.

A person having 10 DVR shares will have the same voting power as someone who has 1 ordinary share.

-----------------------------------------

Sometimes these shares have a different dividend rate.

e.g. In case of Tata Motors, the dividend for DVR has been fixed at 5 percentage points above ordinary shares.

Thus, if the company announces 1% dividend for ordinary shares, it will have to give 6% dividend to DVR shares.
-----------------------------------------

It is not necessary that DVR shares always have less voting rights.

Sometimes companies issue DVR shares with more voting rights than ordinary shares.

-----------------------------------------

Here is a nice article on DVR shares in India.

-----------------------------------------

Preference shares are called shares, but actually they are more like bonds.

Preference shares are entitled to a fixed dividend and nothing more.

This article explains preference shares in a simple way.

__________________
Read All Rules Before Making Any Post | E-Investing on Google+

Alchemist -Thanks that’s useful info about DVR. In case of an unlisted entity – how does the price discovery takes place, do existing shareholders also decide the price as per company law? It seems to me that DVR only makes sense (for the promoter) if they are acquired at a steep discount. Otherwise instead of creating new shares and then getting shareholders approval it may makes sense to acquire normal shares (without any difference in voting rights).

SEBI amended its listing agreement on July 21st 2009.

Issuing shares with superior voting rights or superior dividends is no longer allowed.

A DVR either has to have superior voting right or superior dividend to find buyers.

Thus, it doesn't make sense to issue DVR's any more.

http://www.sebi.gov.in/circulars/2009/cirla2.pdf

__________________
Read All Rules Before Making Any Post | E-Investing on Google+

Hi Alchemist,

But the dividend payout for Tata Motors is as follows

Tata motors: Rs 6 per share.
Tata motors DVR: Rs. 6.5 per share.

Both went ex-dividend on 3rd August 2009.

If these follow the SEBI circular, then the dividend amount should have been same. If they don't follow the circular, since they were already listed before it came out, then shouldn't the dividend for DVR shares have been much higher?

Thanks.

Why?

Tata Motors gave a dividend of 60% on its common shares and 65% (60%+5%) on its DVR.

__________________
Read All Rules Before Making Any Post | E-Investing on Google+

I misinterpreted that dividend would increase proportionately. It actually increases by 5% over that of ordinary share dividend.

Thanks for the clarification.

Are the DVR shares listed on stock exchange?

Can a retail investor buy them?

Yes, some DVRs are listed on the exchanges,

As of now, 3 DVR shares are listed on the NSE:

Tata Motors.
Gujarat NRE Coke.
Pantaloon Retail.

__________________
Read All Rules Before Making Any Post | E-Investing on Google+

But when I searched for Tata Motors on the NSE, it's showing me the same stock which is listed on the BSE with nothing specified about the DVR. and as you said, that we being retail investors can buy this, isn't it more beneficial for us with dividend is higher compared to companies other issued shares? Please reply.

Here are the quotes for Tata Motors and Tata Motors DVR on the NSE:

Tata Motors.

Tata Motors DVR.

__________________
Read All Rules Before Making Any Post | E-Investing on Google+

What is DVR shares? Is it similar to Tata Motors shares? If so, why trading at huge discount?

DVR shares are shares with differential voting rights.They mostly trade at a discount as they provide fewer voting rights compared to ordinary equity shares.

Total DVR issues in India:4

1.Jagatjit Industries (2004).

Issued DVR's to promoter Jaiswal Family with superior voting right,each share had 20 voting rights.After the issue promoter stake increased from 23.59% to 32.1%% and voting power to 62%.

2.Tata Motors DVR (Sept 2008) through Rights offering.

3.Pantaloon DVR through Bonus.

4.Gujarat NRE Coke DVR through Bonus.

Tata Motors DVR:

Tata's first issued these DVR's in 2008 at a 10% discount to ordinary shares at 305, this was done to fund their JLR acquisition.

The second issue was done recently (Oct,2010) with a QIP worth $550 million at 764/share that was oversubscribed 3.4 times.This time the discount between the ordinary share and DVR widened to 28%.

Why should the discount narrow?

1.The stock split (announced recently) and inclusion in the futures and options segment (done some months ago) will improve participation and lead to better price discovery.

2.Since there are no governance issues, the big discount is unwarranted.

3.Increasing investor awareness of the instrument.

4.Increase in free float.

How much should the discount be?

These DVR's carry one tenth the voting right and a 0.5%( 5% on face value of Rs 10) extra dividend.

The current discount is around 45%.

Since there are no corporate governance issues with the company the DVR's 'should' trade at a discount of 10-20%.

Some examples of global dvr's are:

1.The DVRs of Berkshire Hathaway(BRKB),trade on par despite offering only 1/30th the voting right.

Class A and Class B Stock Comparison

2.Google(GOOG).

Class A:
->1 vote per share.
->Publicly traded.
->No dividends.

Class B:
-> 10 votes per share.
-> Not publicly listed or traded.
-> 111 shareholders of record, All held by founders, directors and executives.

When does the discount increase?

1.Dilution fears.

2.Corporate Governance issues.

3.Fear of lowering of Dividend.

4.Fears of a Takeover.

How much dividend?

Tata motors declared a dividend of 20/share, the DVR holders will get 20.50/share dividend.

Other points to consider?

1.There is 'no sacred discount' and the gap could also become 60% from the current 45%.

2.There has been much more dilution in the DVR leading to oversupply and apprehension towards the DVR.

3.This provides better margin of safety as it has two layers of undervaluation.

What about the liquidity factor with Tata Motors DVR, are they equally liquid as stocks, and is the dividend rate same as stock?

By when can one buy tata motors DVr for getting dividends?

Liquidity is on the lower side especially on the BSE, NSE volumes are better.

This should improve once the split takes place.

The DVR is just like any other stock, the only difference is the voting right it carries.

To get the dividend you have to buy before 19/07/2011(Ex-date).

Where did you got Ex-Date information from? Needed for other stocks also like Titan etc.

I could not find on this link.

NSE - Corporates - Corporate Announcements

The Ex-date has been updated on the BSE.

TATAMOTORS-DVR-A-ORDY Corporate Action

Tata Motors Dividend - Dividend history of the Tata Motors

For Titan date have been declared yet.

I see ex-date as 19/07/2011 and Book Closure as 21/07/2011-12/08/2011

Does it mean that I will get dividend if I buy on 19th July. Or is It that shares should reach my Demat by 19th.

What is book closure?

If you buy on 19/07/2011,you will not get the dividend since the stock will already be ex-dividend.

In order for the shares to reach to your demat account before the book closure date,you will need to buy on or before 18/07/2011,the delivery of shares takes T + 2 days and shares would reach you demat on 20/07/2011.

Book closure helps a company determine exactly the shareholders on a given date eligible for the benefits attached to the shares, during which the share transfer books remain closed.

So if you buy a stock during book closure you will not be entitled to any dividends,since the price would already have adjusted for the dividend payout.

Book Closure Definition

Thanks.

Does it mean that If I buy/sell during book closure, I don't have to give immediate delivery? I can square off my position next day.

You will have to give delivery T + 1 as usual,the only difference is the buyer will not be entitled to any dividend if he buys during book closure.

SEBI has removed the share no-delivery period for all corporate actions from August 10,2009.

http://www.sebi.gov.in/circulars/2009/mrdcir0709.pdf

Sebi removes no-delivery period.