Tata Motors DVR Shares Rise 18% After This Big Announcement For Shareholders By Tata Motors

Tata Motors DVR share price skyrocketed by nearly 18% on Wednesday after automaker Tata Motors announced a scheme of arrangements for reducing DVR shares and issuing ordinary shares. Eventually, the Tata Group-backed automobile flagship plans to cancel all 'A' ordinary shares that are held as Tata Motors DVR. Tata Motors reported better-than-expected Q1 earnings for FY24 driven by easing in supply chain and sales pickup of luxury brand Jaguar Land Rover (JLR).

On BSE, Tata Motors DVR shares ended at Rs 419.45 apiece, up by Rs 46.35 or 12.42%. The stock has touched a new 52-week high of Rs 440 apiece, recording nearly 18% upside on Wednesday.

In a regulatory filing on Tuesday, Tata Motors said that the Audit Committee and Committee of Independent Directors approved a scheme of
arrangement amongst the company and its shareholders and creditors.

Under the scheme, the board approved for reduction of capital of the company by way of cancellation of the entire 'A' Ordinary Shares and issuance of and allotment of the Ordinary Shares, which would rank pari passu with the existing Ordinary Shares in the Company, as consideration for such reduction of capital.

This means that Tata Motors will cancel all Tata Motors DVR shares and issue and allot new ordinary shares.

The scheme is subject to approval from market regulator Sebi, shareholders and creditors of Tata Motors, and NCLT.

As per the scheme of arrangement, Tata Motors will issue 7 fully paid up New Ordinary shares of face value of Rs 2 each for every 10 'A' Ordinary Shares (DVR shares) of face value of Rs 2 each.

For the transfer of the consideration for the reduction of the 'A' Ordinary Shares by the company to the relevant shareholders, Tata Motors will , prior to the date of effectiveness of the Scheme, settle a trust.

According to the filing, the trust will receive the New Ordinary Shares from the Company on behalf and for the benefit of each of the relevant shareholders as contemplated in the Scheme and will thereafter, postsale of the requisite number of New Ordinary Shares required to discharge certain obligations, inter alia, in relation to taxes payable and completion of the other actions as specified in the Scheme, distribute the remaining New Ordinary Shares to the relevant shareholders in terms of the Scheme.

This move is expected to have various benefits such as --- preserving liquidity for Tata Motors growth; allowing the holders of the 'A' Ordinary Shares to continue to participate in the company's performance through the ordinary shares among other benefits.

Tata Motors issued DVR shares s in 2008 as part of a rights issue with the objective of funding certain overseas investments.

It needs to be noted that the rights which are attached to holding ordinary shares of Tata Motors are similar to those of holding DVR shares, except for voting and dividend.

Subsequently, Tata Motors highlighted that regulatory changes restricted the issuance of shares with differential voting rights, resulting in a narrow market for similar instruments.

It added that the discount in the price at which the 'A' Ordinary Shares trade vis-à-vis the Ordinary Shares has increased since the date of listing of the 'A' Ordinary Shares. This has the effect of significantly understating the Company's market capitalization, contributes to a complex capital structure and increases administrative complexity vis-à-vis maintaining 2 (two) separate classes of shares.

Hence, the company seeks to reorganise its share capital by cancelling 'A' ordinary shares and issuing new 'Ordinary' shares.

As of June 30, 2023, Promoter and Promoter Group hold 3,90,02,948 'A' number of ordinary shares, while 'Ordinary shares' were to the tune of 1,54,08,85,009 equity shares. This accounted 46.39% of the shareholding pattern.

Meanwhile, public shareholders held 46,94,99,948 equity shares under 'A' ordinary shares category, while they hold 1,78,06,05,573 equity shares as 'Ordinary' shares -- representing 53.61% of shareholding pattern.

With new ordinary shares, the Tata Motors DVR shareholders will be able to have equal voting rights like 'Ordinary' shareholders. However, they will not enjoy the higher dividend payout in DVR shares which usually is the case against 'ordinary' shares.