Tata Motors To Swap DVRs With Ordinary Shares

The board of Tata Motors Ltd. has approved the scheme of arrangement through the NCLT for the cancellation of Tata Motors 'A' Ordinary Shares—also called DVR (Differential Voting Rights) shares—and issuance of Ordinary shares as consideration for the cancellation of DVR capital.

Tata Motors DVR was the only listed DVR trading in the stock exchanges.

The company will issue seven Ordinary shares for every 10 DVRs held by the investor. This translates into 23% premium to the pre day closing price of the DVR and 30% discount to the price of ordinary shares. The Tata Motors DVR is trading currently at a 41.6% discount to ordinary shares on the stock exchanges.

Upon completion of the restructuring of the share capital, the equity capital will be reduced by nearly 4% and the effective shareholding of the promoter and promoter group will be reduced by 3.16%, the company said in a disclosure to the stock exchanges.

Tata Motors had issued the ‘A' Ordinary Shares in 2008 as part of a rights issue with the objective of raising funds for overseas investments. The rights attached to the ‘A' Ordinary Shares are similar to the rights attached to the Ordinary Shares in all respects, except that they have 5% additional dividend rights and one tenth voting rights. The DVR, hence, trades at a discount to Ordinary shares.

The DVR began trading at a 10% discount to ordinary share and this discount widened to over 40% over the last 15 years. Despite the DVRs being added to the index and Futures & Options, the discount of DVRs to ordinary shares didn't improve though liquidity improved in these DVR shares.

Since then, SEBI has disallowed differential voting rights in shares and that restricted the issuance of such shares, resulting in a narrow market for similar instruments. The discount in the price of DVR has increased since the date of listing of the ‘A' Ordinary Shares.

This has the effect of significantly understating the company's market capitalisation, the company said. It further contributes to a complex capital structure and increases the administrative complexity of maintaining two classes of shares, it said.

The reorganisation of share capital will simplify and consolidate the company's capital structure and preserve liquidity, in addition to being value-accretive and beneficial for all shareholders, the company said in a statement.