Shares of Tata Motors climbed nearly 2% in early trade on Friday after the Tata Group company received a no-objection certificate (NoC) from the NSE and BSE for the conversion of its differential voting rights (DVRs) shares to ordinary shares. The exchanges have issued an NoC for the scheme of arrangement for the cancellation of DVRs of the company and issuance of ordinary shares, the auto major says in a BSE filing.
“BSE Limited vide its letter dated December 20, 2023 and National Stock Exchange of India Limited vide its letter dated December 21, 2023, have granted their no objections (NoC) to the scheme of arrangement amongst Tata Motors and its shareholders and creditors for cancellation of the entire ‘A’ ordinary share capital of the company and issuance and allotment of ordinary shares as consideration for such reduction of capital,” the company says in a BSE filing on December 21.
Reacting to the news, Tata Motors shares gained as much as 2.2% to ₹724.50 on the BSE. Early today, the auto heavyweight opened higher for the second straight session at ₹717 against the previous closing price of ₹708.75. Early this week, the stock touched its 52-week high of ₹734.85 on December 18, with the share price doubling from ₹375.50 on December 26, 2022.
In a similar trend, Tata Motors DVR shares also surged 2.2% to ₹485.35 against the previous closing price of ₹474.40 on the BSE. The stock hit a 52-week high of ₹494.90 on December 15, 2023, and a 52-week low of ₹190.65 on December 23, 2022.
The current market capitalisation of Tata Motors is ₹2.4 lakh crore and that of Tata Motors DVR is ₹24,558 crore.
On July 25 this year, Tata Motors informed exchanges that it would convert its DVR shares into ordinary shares to simplify its capital structure. The board of directors of Tata Motors approved the conversion of DVR shares to ordinary shares under which the shareholders of DVRs would receive 7 fully paid-up shares of Tata Motors for every 10 Tata Motors DVRs they held. This will help Tata Motors reduce the equity base by 4.2% without impacting its net debt as it would still get the DVR shares at a discount to ordinary shares, even after paying the 23% premium.
The decision to cancel DVR or A-share programme comes 15 years after issuance, when it was first issued in October 2008 to give different voting rights to their shareholders compared to holders of regular equity shares.
In 2008, Tata Motors issued a new type of security known as the Differential Voting Rights or DVR shares to repay the loans taken for funding the acquisition of luxury brands Jaguar and Land Rover (JLR). It was the first Indian company to issue those shares in the markets followed by other listed entities such as Gujarat NRE Coke, Future Enterprises, and Jain Irrigation.
DVR shares are designed to give higher dividends to owners as a form of compensation for their lower voting rights compared to holders of ordinary equity shares. The price of DVR shares is lower compared to ordinary shares, as they are often extended at discounts. Adding to it, since DVRs are offered at a discount, the higher dividend payout makes the DVR a lot more attractive in terms of dividend yields.
In January this year, Tata Motors delisted its American Depository Receipts (ADRs) from the New York Stock Exchange (NYSE), which was listed in the U.S. in 2004.
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