Promoters of Tata Motors have offloaded close to 29% of their shares with differential voting rights (DVR) during the quarter ended December 2009. The promoters holding in the DVR shares has now slipped to 56.59% as on December 31, 2009, from the 79.66% levels held during the September-ended quarter according to the latest shareholding pattern available with the Bombay Stock Exchange. Trade analysts believe that the company could have well raised around Rs 700 crore through this stake sale. The Tata Motor?s DVR shares have limited voting rights of one for every 10 shares held but are entitled to an additional 5% dividend to the ordinary shares.
During October and December 2009, the shares of Tata Motors with DVR shares were trading at a discount in the range of 25% to 35% compared to the price of the underlying ordinary shares. With DVR shares available at a steep discount and an added advantage of additional 5% dividend, long term domestic and overseas institutional investors found a good opportunity to increase their stake in the company. Moreover, globally such DVR shares usually trade at a discount of around 5% to 10% and with such a huge discount it was expected that the discount would thin down and allow for gains.
And since Tata Motor promoters held around 79% of these shares there was low liquidity in the share and such frequent sell outs are expected to increase liquidity. Since the beginning of the year 2010, the DVR has fallen sharply by around 21% whereas the underlying ordinary share price has fallen by 17%, thereby the discount has now increased to around 42%. However, since its listing in October 2008 the DVR share price has appreciated by 30%. Major purchasers of the DVR include Prudential India Equity Fund which has a stake of 5.47%, Swiss Finance Corporation with 2.79%, DSP Blackrock with 1.26%, Nomura India Investment Fund of 1.09% and Dragon Peacock Investments picking up a stake of 1.54%.
Tata Motors that came out with its rights issue in 2008 received lukewarm response from the public due to weak market conditions and the promoters had to subscribe close to 85% of the rights issue. The remaining portion was subscribed to by JM Financial (2.19%), who was also the lead managers to issue and 12.77% by IFCI. The issue was intended to fund its JLR acquisition and their planned capex. According to the terms of the issue, the company planned to raise Rs 2,186 crore through the issue of ordinary shares in the ratio of 1:6 priced at Rs 340 and Rs 1,960 crore through the issue of Class ?A? shares having DVR in the ratio of 1:6 priced at Rs 305 a discount of 10%.