Tata Motors received a superb response to its rights issue, with the book subscribed 1.20 to 1.25 times as on 6 pm.
Amid a weak undertone in Indian equity markets, Tata Motors received a superb response to its rights issue, with the book subscribed 1.20 to 1.25 times as on 6 pm on Saturday, four people with direct knowledge of the matter told FE.
Sources said Tata Motors’ final subscription might see a further increase, as the counting of bids was in progress after the issue was extended by an hour on the final day.
The success means that India’s largest automobile manufacturer by revenue will raise nearly Rs 7,500 crore — the third-largest rights offering in the history of Indian capital markets. Citigroup Global Markets, DSP Merrill Lynch, HSBC Securities and Capital Markets (India), Kotak Investment Banking, ICICI Securities, Credit Suisse, HDFC Bank, JP Morgan India and SBI Capital Markets were financial advisers to Tata Motors’ rights issue.
Tata Motors’ fund raising exercise will add 5.5% equity to total number of shares outstanding as on the quarter ending March 2015. A back-of-the-envelope calculation indicates combined bids of more than 22 crore ordinary, as well as ‘A’ ordinary-DVR (differential voting rights) shares. The ordinary share category was subscribed 1.2 times against the offer size of 15.06 crore shares, while the ‘A’ category book was subscribed about 1.5 times the offer size of 2.65 crore shares.
Sources said shareholders of all categories participated in the issue. Investors who were not entitled for a rights allotment also bid Tata Motors’ shares in the hope that many existing shareholders may not have participated.
“Many existing and new Tata Motors’ investors wanted to buy more shares given the discount tag attached and the shortage of quality paper in the market,” said a source.
In a rights issue, existing shareholders are entitled to buy additional shares directly from the company in proportion to their existing holdings, usually at a discount within a fixed time period. Rights entitlement are transferable and also allows the holder to sell them in the open market. A company typically issues rights to give their existing shareholders the opportunity to buy additional shares before other buyers.
Tata Motors, in January, had announced plans to raise R7,500 crore by way of rights issue. The issue opened on April 17 and closed on May 2 (Saturday). The company had offered 15.06 crore ordinary shares at a price of R450 apiece – a discount of roughly 17% to prevailing market price. The company had offered 2.65 crore DVR shares at R271 per share, 14% discount.
While the company has not made the details public, analysts estimate R4,000 crore being utilised for debt reduction, including the buyback of non-convertible debentures. The company will buy back R1,250 crore of NCDs of May 2009 having March 31, 2016 as maturity date as part of its debt restructuring programme to ensure a healthy debt. The exercise will relieve the company with R400 crore in interest costs in the near term. As a result, analysts foresee the company’s debt-to-equity ratio to improve to 1.1–1.2 times. Tata Motors’ total debt stands at R18,000-odd crore as on quarter ending September 2014.