Tata Motors' DVR conversion plan gets shareholders' nod with 99.8% votes

Tata Motors has obtained requisite majority from its shareholders on the scheme of arrangement pertaining to conversion of shares with differential voting rights (DVR) (also known as A-ordinary shares) into ordinary shares. The resolution (Scheme of Arrangement of Tata Motors and its shareholders and creditors under Sections 230 to 232 of the Act) received an overwhelming 99.81 per cent ‘for’ votes, showed a stock exchange filing made by the company.

The shareholder approval will pave the way for Tata Motors to convert its shares with DVR into ordinary shares and thereby simplify its capital structure.

Some of the key shareholders in Tata Motors are LIC, Vanguard, SBI MF, Rakesh Jhunjhunwala family, Blackrock, ICICI Prudential AMC and Norges Bank.

The scheme, first announced in July last year, involves issuance of seven ordinary shares of Tata Motors for every 10 A-ordinary shares held. Following which, all the outstanding A-ordinary shares will stand cancelled. Ordinary shares of Tata Motors last closed at Rs 1013.8, while the DVR ended at Rs 684.55. As per the last close and the swap ratio, the DVRs are still available at a 3.7 per cent discount to the ordinary shares.

Proxy advisory firms had recommended ‘for’ votes on the resolution stating that conversion of DVR into ordinary shares will result in multiple benefits.

“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 had said in its note.

In its note, Stakeholders Empowerment Services had said the termination of the DVR programme was 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 will form two separate companies, with one housing the commercial vehicles business and the other passenger vehicles businesses, including JLR.

The termination of the DVR programme by Tata Motors brings curtains on an innovative way of fund raise which allowed promoters to raise capital without diluting their voting power. Such instruments are popular in the US, mainly among new-age companies. However, the change in regulations don’t allow India Inc to issue shares with DVRs anymore.