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Kolkata, Sept. 24 Tata Steel cumulative convertible preference shares (CCPS) are trading at 8.6 per cent discount to its ordinary shares creating a swap opportunity for the investors.

Mr V.K. Sharma of Anagram Securities said that Tata Steel’s CCPS were currently trading at Rs 74, whereas the ordinary equity shares of the company were trading at around Rs 486. “According to the conversion rate, six Tata Steel preference shares held as on Sep 1, 2009 would fetch one equity share. But the CCPS’ current rate effectively means the price of one equity share (74x6) is Rs 444 against the current actual traded price of Rs 486,” he said.

However, the dividend yield of the ordinary shares is much higher than that of CCPS. The company had paid a dividend of 2 per cent or Rs 2 on CCPS of Rs 100 each on pro-rata basis from the date of allotment of CCPS i.e. January 18, 2008 to March 31, 2008 and 160 per cent or Rs 16 on ordinary shares of Rs 10 each for the year ended March 31, 2008.

“But all said and done, if an investor is ready to wait till September 1, 2009, then he notionally stands to gain selling equity shares and buying equivalent CCPS at current respective prices”.

Tata Steel shareholders have had used this kind of an arbitrage opportunity earlier also whenever such price disparity occurred, dealers said.

Tata Steel had issued cumulative convertible preference shares to raise maximum of Rs 6,000 crore to part-finance Corus acquisition. Tata Steel committee of directors, at its meeting on October 5, 2007, had approved the allotment of CCPS on ‘rights’ basis at a ratio of nine CCPS of Rs 100 each for every 10 shares held. Six of these instruments will be compulsorily converted into one equity share of Rs 10 each on September 1, 2009. The company had indicated that the exact conversion price would be decided later, but will be in the range of Rs 500-600 a equity share. The remaining three CCPS will be consolidated and converted into shares, sold in the market and the proceeds distributed to shareholders.

More Stories on : Stocks | Preferential Allotments | Tata Steel Ltd

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