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Tata Motors may shore up DVR via $550mn foreign issue |
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Business Posted On Saturday, July 24, 2010 | Agencies
Mumbai, July 24:
Tata Motors, India's largest truck and bus maker, will consider a $550-million sponsored overseas issue for its shares with differential voting rights (DVR) after some investors expressed discomfort with the steep discount they fetch in relation to the firm's ordinary shares.
A person close to the company said the proposal will be discussed internally. "The sponsored DVR programme will help minimise liquidity risk and improve pricing, while it gives wider investor participation," he added. A Tata Motors spokesperson declined to comment on the issue.
On Friday, Tata Motors' DVR closed at Rs 579.60, about 30% below the ordinary shares which ended at Rs 837.45. Globally, DVR shares trade at a discount to ordinary shares as they have limited voting rights. In this case, however, investors contend the discount is much steeper. "In several overseas markets, DVR shares trade at 10-15% discount to ordinary shares. So, why not here too?" asked an institutional shareholder, who owns Tata Motors DVR shares.
DVRs are issued when a company wants to raise money but does not want to cede voting rights. Tata Motors DVR shares were listed in November 2008, and the share price has moved in a tight band since then.
A sponsored share issue reduces the supply of shares in the domestic market, thereby boosting prices in times of demand. Also, an overseas issue would create an arbitrage opportunity, as local investors can buy Tata Motors DVR shares cheaper on the BSE and sell them at a higher price overseas.
"It will certainly improve sentiment in DVR shares if Tata Motors agrees to do a sponsored DVR programme," the head of a foreign investment bank said. In a sponsored issue, the company does not issue fresh shares, but only facilitates the sale of shares from existing shareholders to new ones overseas. The shares tended by the existing holders are held by the depository and converted into depository receipts, that are listed overseas. Software exporters Infosys Technologies and Wipro have floated a few sponsored ADR issues in the past.
HDFC Trustee Company, PCA India, Swiss Finance Corporation, ICICI Prudential Asset Management, Abu Dhabi Investment Authority and The Prudential Assurance Company are among the top public shareholders in Tata Motors DVR shares. Public shareholders held 37.61% of the DVR shares as on June 30, as per BSE data.
A couple of foreign investment banks are also believed to have sought the institutional investors' views on a sponsored DVR, but it is not clear whether Tata Motors has appointed bankers for this.
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Friday, September 03, 2010