Tata Motors first to offer 'differential' rights issue

To raise Rs 4,147 crore to fund Jaguar, Land Rover buy

Tata Motors will raise Rs 4,147 crore through a rights issue that will comprise both ordinary shares and those with differential voting rights, called “A” ordinary shares.

This will be the first time that an Indian company is issuing shares with differential voting rights. The issue which is slated to open at the end of this month, will also be India’s first fast-track rights issue, a dispensation under which the Securities and Exchange Board of India (Sebi) allows quick approvals.

The ordinary shares will be priced at Rs 340, a 21 per cent discount to the current market price of Rs 430 and will be offered in the ratio of 1:6. The “A” ordinary shares will also be issued in the ratio of 1:6 but will be priced far lower at Rs 305, a discount of 29 per cent.

Moreover, these shares will attract a dividend that is five per cent higher than that on ordinary shares.

However, shareholders owning these shares will be entitled to only one vote for every 10 shares held, though they will get all the financial benefits — splits, buybacks and rights — much like an ordinary share. “A” ordinary shares will account for about 12.3 per cent of the equity of the company after the issue. “We believe there are investors who prefer holding shares that attract a higher dividend and do not mind having fewer voting rights,” said N Soonawala, director ,Tata Sons.

Soonawala added that such shares typically trade at a higher price, compared with ordinary shares.

The rights issue is being made to help repay the bridge loan of $3 billion taken to fund the acquisition of Jaguar and Land Rover, completed in June 2008.

C Ramakrishnan, president and CFO, Tata Motors, said the loan is to be repaid by June 2009. Ramakrishnan added that a part of repayment will be made by selling investments held by Tata Motors worth Rs 2,000-Rs 3,000 crore. The sale of these stakes in various companies, he said, has already begun.

The Tata Motors scrip closed at Rs 430 on Tuesday. The stock has lost 32 per cent since the issue was announced on May 28, 2008 when the price was Rs 634.75.