26-Jul-2023
2 mins read
In a recent development, automaker Tata Motors announced converting its DVR shares into ordinary shares, which increased its share price by 18%. After delisting its American Depository Receipts, Tata Motors strategically decided to simplify its capital structure.
Upon the successful implementation of the Scheme, Tata Motors will issue 7 fully paid-up new ordinary shares, each with a face value of Rs 2, for every 10 existing ‘A’ common shares, also having a face value of Rs 2
For converting DVRs (Differential Voting Rights) into ordinary shares, the company will need approvals from several entities, including the capital market regulator SEBI, creditors, stakeholders, and the NCLT (National Company Law Tribunal).
What are DVR shares?
DVR stands for Differential Voting Rights shares. These are a particular class of shares issued by a company, wherein shareholders are given different voting rights than regular shares. In the case of Tata Motors DVR shares, they may have fewer voting rights than common Tata Motors shares. DVRs possess 1/10th of the voting rights of ordinary shares.
Tata Motors became the first to issue this innovative financial instrument in 2008. Investors were lured by the appealing prospect of receiving a special additional dividend of 5% and benefiting from the discount provided on the basic ordinary share.
Currently, more than 92% of the Tata Motors DVR holders are public. Mutual funds collectively hold a 28.82% stake in Tata Motors DVRs, and FPI has 18.6%.
The effect after conversion into ordinary shares.
The decision to convert DVR shares into ordinary shares will result in a 4.2 % reduction in outstanding equity shares, Enhancing value for all Shareholders. After the process is completed, the promoter and promoter group’s effective voting rights will decrease by 3.16 %. For every 10 DVRs held, the DVR holders will receive seven ordinary shares with a face value of Rs 2 each. This equates to a premium of 23 % over the previous day’s closing price of the DVR shares and a 30 % discount compared to Tata Motors ordinary shares.
Performance of DVR Shares
Tata Motor’s DVR trades at a 43% discount on ordinary shares. Also, the DVR shares have surged approximately 82% year-to-date, compared to a 64.83% increase in the company’s common or ordinary shares.