Tata Motors to issue 7 ordinary shares for every 10 DVRs held

Minutes before Tata Motors made this announcement of cancellation of Differential Voting Rights (DVR) shares, Tata Motors DVR rose sharply, raising questions about possible insider trading.

Tata Motors’ DVRs had been trading at or near the 370 mark throughout the day, but suddenly rose 3% just before the market closed on higher volumes. After waiting for about fifteen minutes, Tata Motors informed the stock exchanges that it would be giving investors regular shares in exchange for the holding DVRs.


In press release, Tata Motors said “  The Board of Directors of Tata Motors has approved an NCLT Scheme of Arrangement for the cancellation of “A” Ordinary Shares and the issuance of Ordinary Shares in exchange for the cancellation or capital reduction. For every 10 “A” Ordinary Shares held, each shareholder will receive seven additional Ordinary Shares. The move is aimed at capital reduction, and the automaker will seek National Company Law Tribunal’s approval for the same”.


The DVRs are currently trading for a significant discount to ordinary shares. On Tuesday, the BSE’s regular shares of Tata Motors closed at $639.45, while the DVRs closed at $373.10.


“The Capital Reduction Consideration implies a 30% discount over the ordinary share price and is significantly below its historical averages, translating to a 23% premium on the previous day’s closing share price of ‘A’ Ordinary shares. The Scheme will result in a 4.2% decrease in the number of outstanding equity shares, adding value for all shareholders”, according to the Tata Motors statement.


“We really like to make our capital structure simpler. The difficulty with DVR shares is that the instrument lost its charm in 2010 when the regulator expressed concerns about its use. While the discount started averaging 48%, we attempted to infuse liquidity. DVR owners brought up the matter during the meeting. Therefore, cancelling all of the ‘A’ ordinary shares and issuing them all with ordinary shares was the problem’s solution. This is equal and fair for both ‘A’ ordinary shareholders and ordinary shareholders, according to PL Balaji, Tata Motors’ group chief financial officer.