 "Proxy firms give up a thumbs up to Tata Motors DVR conversion plan")
Proxy advisory firms Institutional Investor Advisory Services (IiAS), Stakeholders Empowerment Services, InGovern and Institutional Shareholder Services (ISS) have recommended ‘for’ votes on the resolution floated by Tata Motors pertaining to the conversion of shares with differential voting rights (DVRs) — also known as A-ordinary shares — into ordinary shares.
The voting on the scheme of arrangement put forth by the automotive major — which requires a majority of the minority votes from both the DVR and ordinary shareholders — commences on Friday.
Most of the voting recommendation firms are of the view that the move to extinguish DVR will help simplify the capital structure at Tata Motors, resulting in multiple benefits.
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“The scheme aims to optimise the company’s capital structure and enhance its market capitalisation by removing discounts on A-ordinary shares. Also, this initiative will not have an adverse impact on the shareholders,” ISS has said in a note.
“The reduction will simplify and consolidate the company’s capital structure and eliminate the price discount between A-ordinary shares and ordinary shares. It will lead to a reduction in the overall capital base of the company, making it 4 per cent earnings per share (EPS)-accretive for all shareholders. This will also help in improving overall market capitalisation,” IiAS has said in its note.
The scheme, first announced in July last year, involves the issuance of seven ordinary shares of Tata Motors for every 10 A-ordinary shares held. Following this, all the outstanding A-ordinary shares will stand cancelled.
Shares of Tata Motors ordinary shares and A-ordinary shares closed at Rs 992 and Rs 664, respectively.
According to the last close and swap ratio, the DVRs are still available at a 4.4 per cent discount to ordinary shares.
In its note, SES has said the termination of the DVR programme is needed for the Jaguar Land Rover (JLR) maker to go ahead with its proposal to demerge Tata Motors into two separate listed companies.
Earlier this year, Tata Motors said it would form two separate companies, with one housing the commercial vehicle business and the other the passenger vehicle business, including JLR.
“The demerger…would necessitate the issue of DVR shares on a new company, which is not possible under the current law and there is no way any relaxation can be given on this account. This would necessitate the issue of DVR shares on a new company if DVRs are not cancelled,” SES has said.
The backing by the four proxy firms comes amid concerns raised by certain retail shareholders that the proposed scheme of arrangement could result in the loss of “economic value”.
In response to a query sent by Business Standard, a spokesperson for Tata Motors said, “The company does not gain financially from this transaction, but this will be a win-win for all as it will streamline and reduce the share capital of the company by 4.2 per cent making it EPS-accretive for all shareholders. Since the DVRs are freely traded, all DVR holders, if interested, can easily choose to either liquidate their holding at any time or continue to participate in Tata Motors’ growth.”
He added that the DVR shares for several years have traded at a discount of between 40 per cent and 50 per cent to the ordinary shares and have been valued under the scheme at only a 30 per cent discount.
“Further, independent merchant bankers Citi and Axis Capital have given their fairness opinion on such valuation for DVRs and ordinary shares, respectively and independently.”
Company executives have said large investors are supportive of the DVR termination plan.
Some of the key shareholders in Tata Motors are Life Insurance Corporation of India, Vanguard, SBI Mutual Fund, Rakesh Jhunjhunwala family, BlackRock, ICICI Prudential Asset Management Company, and Norges Bank.