Tata Motors shares fall 3%; Rs 4,365 cr of m-cap erased

The stock of Tata Motors, India’s biggest automobile maker, on Wednesday fell 2.64 per cent from its previous close on BSE to end at Rs 589.15, reacting to the announcement of a Rs 7,500-crore rights issue proposed by the company.

Tata Motors’ market capitalisation stood reduced by Rs 4,365 crore from the close on Tuesday, at Rs 1,61,233 crore. This is Tata Motors’ biggest rights issue so far; the previous was its Rs 4,147-crore rights issue to part-finance the purchase of British brands Jaguar and Land Rover in 2008.

Though the extent of stake dilution has not been disclosed, analysts are expecting the dilution to be 4.5 per cent. Considering the proceeds will be used to partly pay off debt, at around Rs 17,000 crore, the company could bring down its finance cost.

While the company’s board gave its approval for the issue on Tuesday, the consent of shareholders will be sought through postal ballot. The rights issue will be for both classes of shares — Ordinary and ‘A’ Ordinary. The proceeds would be used for its growth plans, as well as for reducing debt, the company clarified.

“The quantum, pricing and timing of the issue will be decided at a later point in time, depending upon the market conditions after shareholders’ and other approvals,” stated the company.