Equity dilution concerns drive down stock 6.66 per cent to Rs 548.30.
Tata Motors, India’s largest vehicle manufacturing company, today raised $750 million (Rs 3,487 crore, at the current exchange rate) through issuance of global depository shares (GDS) and convertible notes. The proceeds would be partly used to repay the Jaguar-Land Rover (JLR) acquisition debt.
The company increased the size of the offer by 25 per cent after it met its initial target of $600 million (Rs 2,790 crore) in less than an hour from the launch, a statement from the company said.
Its stock, however, took a beating due to equity dilution concerns on the bourses, recording the maximum plunge among the Sensex pack on the Bombay Stock Exchange (BSE), closing 6.66 per cent down at Rs 548.30 compared with its previous close of Rs 587.40.
Tata Motors issued today 29,904,306 new equity shares in the form of global depository shares at a price of $12.54 per GDS, aggregating $375 million (Rs 1,743 crore). The company also issued 3,750, 4-per cent coupon convertible notes at a price of $100,000 per note, aggregating $375 million. The notes are due in 2014.
The issue comes a couple of days after the company secured a loan of £175 million (Rs 1,300 crore) from State Bank of India, the country’s largest bank, to cater to JLR’s capital needs. A total of $700 million is still outstanding on the cost of acquisition of the two brands, according to Tata Motors.
“The offering was successfully executed against the backdrop of volatile equity market conditions with strong investor interest resulting in the book being closed in less than an hour after launch, generating a demand of $1.25 billion from 40 investors. These GDS and notes would be listed on the Luxembourg Stock Exchange,” the statement further said.
Although the move has eased capital requirement issues of the company to some extent, analysts are cautious about the dilution in equity of Tata Motors.
A city-based analyst said: “Though the company has managed to ease the debt-equity ratio marginally, a 10 per cent dilution of equity has brought bad news. The timing of the issue was also not very opportune. If the company had launched it three days ago, then it would have benefited from the exchange rate.”
The GDS is priced at a discount of 1.5 per cent to yesterday’s closing price of Rs 589.25, while the notes were issued at a 7.5-per cent conversion premium on the GDR price with a yield maturity of 5.5 per cent.
In addition to repaying debt incurred in connection with the acquisition of the two UK-based luxury brands JLR, Tata Motors also said that intended to use the proceeds from this offering for capital expenditure, working capital needs and other general corporate purposes.
Tata Motors’ Vice-Chairman (Non-Executive) Ravi Kant said: “This is a significant milestone for Tata Motors. This transaction is the re-affirmation of investor confidence in the automotive sector and bears testimony to the trust reposed in the long-term outlook and performance of Tata Motors.”
The company’s Chief Financial Officer C Ramakrishnan said: “The offering will augment our long-term resources, help us deleverage and provide us the financial flexibility to pursue our strategic goals.”
