The Hindu Business Line : Tata Motors’ ‘A’ rights priced Rs 305 a share

Mumbai Sept. 2 Tata Motors on Tuesday said it will issue shares with lower voting rights (‘A’ ordinary shares) on a rights basis at Rs 305 for a share, which is at a discount of 10 per cent from the price fixed for its offer of ordinary shares, as part of the Rs 4,200-crore rights issue.

The price fixed for the ordinary shares at Rs 340 a share share is itself at a discount of about 20 per cent from the closing price (Rs 429.85) of the company’s shares on the BSE on Tuesday.

Financing bridge loan

The rights issue is to part finance the bridge loan it had taken for the $ 2.3-billion acquisition of the iconic Jaguar and Land Rover brands from Ford Motor Co.

The company’s committee of directors approved the issue of ordinary shares on a rights basis in the ratio of one share for every six held at a price of Rs 340 for a share to raise Rs 2,186 crore.

Simultaneously, it will offer ‘A’ ordinary shares in the ratio of one share for every six held at Rs 305 for a share to raise Rs 1,961 crore.

The ‘A’ ordinary shares would, however, have differential rights as to voting and dividend. The ‘A’ shareholder shall be entitled to one vote for every 10 shares held, but will be entitled to a dividend of five percentage points more than the rate of dividend declared on the ordinary shares, the company said.

The fast-track rights issue, which will result in equity dilution of about 33 per cent, is slated to open around September end and close by mid-October.

In May this year, the company had proposed a Rs 7,200-crore rights issue, but last month it decided to prune the issue due to souring of market sentiments.

No convertible shares

As part of the pruning, Tata Motors decided to scrap its originally proposed convertible preference share issue of Rs 3,000 crore.

Instead, the company proposed to divest some of its investments, preferably as inter-group sales wherever feasible at prevailing market prices.

According to Tata Motors’ 2007-08 annual report, the value of the company’s investments (trade and in subsidiary companies, excluding those in mutual funds and bonds) was Rs 4,034.51 crore as on March 31, 2008, (compared to Rs 2,281.55 crore in the previous year). The company will be divesting such investments in the next six to eight months.

Analysts’ reaction

Ms Vaishali Jajoo, an auto analyst with Angel Broking, said: “It is beneficial for those investors who do not want to be linked to high amount of risk, as they can be assured at least five per cent dividend.”

Mr Navin Matta, analyst with Dolat Capital Market, said, “Typically, retail investors are not much concerned about voting rights, as they do not have substantial holding to make any resolution.”

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Tata Motors rights issue details on Sept 2

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Tata Motors’ ‘A’ rights priced Rs 305 a share