The case for facilitating tracker shares in India

Tracker shares (also known as tracking shares) are a type of share that “tracks” or depends on the financial performance of a specific business unit or operating division of a company, rather than the operations of the company as a whole. If the unit performs well, the value of the tracker shares may increase, irrespective of the performance of the rest of the company. This article examines the concept of tracker shares in other jurisdictions and its viability in India.

Current situation

Tracker shares are prevalent in the US and some European countries. Companies including General Motors, AT&T, Genzyme Corporation and Sony Communications have issued and listed tracker shares for specific units.

Issuance of tracker shares is viewed as an alternative to spinning off or demerging the units into separate companies. It enables a company to unlock the value of a specific unit without creating a separate entity or governance structure and also without losing management control. It ultimately provides the benefits of a separate valuation of the division without having to undertake a process of restructuring. Also, the benefits of the credit rating of the parent will be retained by the unit.

Akila Agrawal is a partner at Amarchand & Mangaldas & Suresh A Shroff & Co. The views expressed in this article are those of the author and do not reflect the position of the firm.