In a significant development on July 26, Tata Motors witnessed a remarkable surge in the shares of its Differential Voting Rights (DVR) by almost 18%, reaching a fresh 52-week high of ₹440 on the Bombay Stock Exchange (BSE) during early trading. The surge came in response to Tata Motors’ announcement regarding the conversion of DVR shares to ordinary shares, a move that is expected to simplify the company’s equity structure and consolidate its traded securities. According to a report by Mint, the decision to convert DVR shares to ordinary shares was disclosed by Tata Motors in conjunction with its latest financial results. As part of the conversion, the company will issue 7 fully paid-up new ordinary shares with a face value of ₹2 for every 10 ‘A’ ordinary shares with the same face value.
This issuance is considered the compensation for the reduction and cancellation of the ‘A’ ordinary shares. DVR shares, which were first issued by Tata Motors in 2008, offer differential voting rights to shareholders, granting either more or fewer voting rights compared to regular equity shares based on the company’s structure. The conversion of DVR shares to ordinary shares is expected to lead to a consolidation of all traded equity securities of Tata Motors, which will now be exclusively listed on the National Stock Exchange (NSE) and BSE. As part of this process, the American Depositary Shares (ADS) representing ordinary shares were terminated earlier in January, effectively delisting from the New York Stock Exchange.
Experts point out that DVR shares are particularly attractive to companies seeking to raise capital from the market without diluting the effective control of the company. By offering lower voting rights through DVR shares, companies can maintain control while still accessing funds from the market. In compensation for the reduced voting rights, companies often provide a dividend premium of 10-20% for DVR shares. This strategic move by Tata Motors is likely to streamline the company’s equity structure and attract further investor interest.
The surge in share price following the announcement indicates a positive response from investors who view the conversion as a favorable step towards enhancing the company’s financial flexibility and growth prospects. As the conversion progresses and the Scheme becomes effective, shareholders will receive new ordinary shares in exchange for their existing DVR shares, aligning the voting rights of all shareholders to the same level. This will ensure a unified and cohesive ownership structure for Tata Motors going forward. Overall, the conversion of DVR shares to ordinary shares is anticipated to bring newfound stability and potentially unlock fresh opportunities for Tata Motors as it continues to solidify its position in the global automotive market.