Indian auto major Tata Motors on Tuesday announced a Rs 4,200 crore rights issue to part-fund its $3 billion acquisition of the UK-based high-end auto brands ? Jaguar and Land Rover (JLR). The offer would, for the first time, see the issuance of shares with differential voting rights and dividend.
This would also be the first rights issue under the Securities & Exchange Board of India?s (Sebi) fast track issuances (FTI) initiative to speed up the issue of shares for established companies. The company is also planning an overseas equity issue of upto $600 million for funding the acquisition.
Structuring the rights offer in a unique manner, the Tata Motors management will, for the first time, be offering two unlinked offers in the ratio of one share for six shares held. The first part will be a regular rights issue which will be priced at Rs 350 and is expected to raise Rs 2,186 crore. The other part, termed ?A? ordinary shares, will have a differential voting rights and will also attract differential dividend, and is expected to fetch Rs 1,961 crore for the company.
The ?A? ordinary or differential voting shares will be issued at Rs 305, a discount of 12.8% to the regular rights shares and will also have a 5% extra dividend, over the regular voting rights shares.
?We think there are a lot of people who are not interested in voting and now we will be able to get a new class of shares,? said NA Soonawalla, director, Tata Motors. Ten of these differential shares will have one voting right.
Globally, such shares are extremely popular, said Nimesh Kampani, chairman of JM Financial, one of the merchant bankers for the issue. The offer discount for such shares is around 8-10% in the European markets and around 4% in the US market. In comparison, the Tata Motors offer is at a 12.8% discount to the regular rights offer, he added.
With this issue, there is a likely dilution of around 33%, said Soonawalla. In the earlier month, Tata Motors had reworked its plans to raise Rs 7,200 crore long-term capital funds due to volatile market conditions. Plans to raise Rs 3,000 crore through an issue of a five-year convertible preference shares were shelved. The management will also rely on a disinvestment of around Rs 2,000 to Rs 3,000 crore from its portfolio of investments ? including in subsidiary companies — in the current year, to finance the repayment of the $2.4 billion bridge finance the company had undertaken for the JLR deal.
?Much of the disinvestment has already begun and stakes in subsidiaries like TACO have been sold,? said C Ramakrishnan, CFO Tata Motors. In addition, a global equity issue of around $500 to $600 million will be made in the current year, the management added.
At the moment, the issue is not underwritten and the management will be working closely with the merchant bankers on this matter, the management added. The management also assured that the performance figures for JLR for the first half will be made available soon in the offer document. This is something the equity market analysts are waiting with bated breath. A lot of the valuation ratings will be reworked based on the numbers, as a great deal of the extent of the equity dilution is now known.
The shares of Tata Motors closed at Rs 429.95 on the BSE, down 1.82% and the share price has been consistently beaten before it officially acquired JLR on March 30, 2008.