After failing to generate enough investors? response for its rights issue in 2008, Tata Motors ?A? share with Differential Voting Rights (DVR) has started attracting large number of institutional investors owing to its steep discount of over 32% compared to its ordinary shares. Leading domestic and overseas institutions like Swiss Finance Corporation, Sundaram BNP Paribas, Prudential India Equity Fund, UTI MF, SBI Life, JP Morgan and Heritage Capital among others have together bought nearly six million shares of Tata Motors DVR in the past one month. All these trades were done on different dates at different prices.

Although Tata Motor?s DVR shares have limited voting rights of one for every 10 shares, shareholders are entitled to additional 5% dividend to the ordinary shares. Currently, Tata Motors? DVR is quoting at Rs 437.05 compared to its ordinary shares of Rs 580.10?signifying a discount of Rs 143.05 or 32.73%.

Experts, however, reckon that for a long-term investor it doesn?t make any significant difference if they have DVR shares or the ordinary ones. Since DVR is currently quoting at a steep discount and are entitled to an additional 5% dividend, institutional investors see this as a best opportunity to buy.

?Initially it was the domestic mutual funds that started buying followed by insurance companies. Now we are receiving good enquiries from HNIs and FIIs. If anyone likes Tata Motors to be in their long-term portfolio, DVR shares provide great value,? said Harjith Singh Sethi, country head (institutional equity broking), Almondz Global Securities Ltd.

A report by HSBC Invest Direct released in early September stated that investors who are bullish on Tata Motors can buy DVRs instead of the stock, where in there could be an added advantage of the discount, as the movement of the underlying would be reflected on DVRs as well.

The steep discount in DVR shares has come as a great relief for the promoters of Tata Motors who had to subscribe 84.27% of the rights issue owing to lukewarm response from the public. The remaining portion was taken by JM Financial (2.19%), which was also the lead manager to the issue, and 12.77% by IFCI. The issue was planned to repay part of the short-term bridge loan availed by Tata Motors subsidiary for funding its JLR acquisition.

Tata Motors was the first company in the country to issue shares with DVR. However, market regulator Sebi, through a circular on July 21, prohibited companies from further issue of shares with either superior voting rights or dividends to ordinary shares.

According to the terms of the rights 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%.

As liquidity remained low in Tata Motors? DVR shares due to high promoter holding and the subsequent smart recovery in the secondary market, the gap started widening between the two set of shares. With domestic and overseas investors coming in, Tata Sons, having a stake of 72.86% in DVR shares, offloaded close to 8.48 lakh shares for Rs 439.41 thus raising Rs 37.26 crore on September 23 in which equity fund Prudential India had picked up 4.86 lakh shares.

In a similar transaction IFCI, the largest public shareholder with 12.77% stake, has sold nine lakh shares at Rs 352 to Sundaram BNP Paribas in August. It sold another six lakh shares at Rs 437.50 to Swiss Finance Corporation on October 1, 2009

Going forward, market participants feel there is a greater possibility of promoters offloading more shares in the open market post October 2008, as long-term capital gain tax benefit would be available. The company has allotted these shares on October 27, 2008. Since Sebi has now put restrictions on DVR issue, an analyst with a domestic brokerage house said on a speculative note that a situation would come whereby promoters would pass a resolution to consolidate their holding in ordinary shares by absorbing DVR shares with ordinary shares.