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Tania Kishore Jaleel

Mumbai, July 1 The negligible trading seen so far in Tata Motors’ shares with differential voting rights (DVRs) can be blamed on the lack of awareness about the instrument in the Indian markets, said analysts.

These shares were issued in November last year. June was the first month to see trading in Tata Motors’ DVR shares on all days. Until June, these shares were not traded for more than 10 sessions in a month, with as little as one share traded in the day.

DVR investors acquire shares of a company at lower prices with the prospects of higher dividends in return for surrendering their voting rights.

DVR is still a new concept for the investor community here, said analysts. “Our markets here lack the maturity to understand DVRs at this point in time. It will take some time for investors here to appreciate an instrument like the DVR. In developed markets DVRs are common instruments,” said Mr Jagannadham Thunuguntla, Head Equity at SMC Capitals.

Tata Motors was the first company to issue shares with DVRs in India.

The Companies Act permits a company to issue DVR shares when, among other conditions, the company has distributable profits and has not defaulted in filing annual accounts and returns for at least three financial years. The issue of such shares cannot exceed 25 per cent of the total issued share capital of the company.

Tata Motors had issued 6.4 crore shares with DVRs in November 2008 as part of its Rs 4,145-crore rights issue to repay the loan taken for its acquisition of Jaguar-Land Rover. The ordinary rights issue was priced at Rs 340 a share, Rs 35 higher than the DVR shares. However for a 1 per cent dividend on ordinary shares, Tata Motors agreed to give 6 per cent dividend on DVR shares.

Pantaloon too issued shares with DVRs (along with their bonus issue) in February. These bonus issue shares were offered in the ratio of one bonus share with differential voting rights for every 10 equity shares held by shareholders on the record date.

Trading in this stock, though not substantial, has been better than that in the Tata Motors’ DVRs.

Pantaloon has seen 23.05 lakh shares with DVRs traded on the BSE in 2009, while Tata Motors has seen a dismal 5,427 shares with DVRs traded.

Another reason for the poor trading in Tata Motors’ shares with DVRs is that the promoter group holds the majority of the shares.

At the time of the issue, JM Financial was the underwriter. With the underwriter renegotiating its underwriting commitment, the promoters of Tata Motors ended up with more than 84 per cent of the shares. The next chunk of DVR shares went to IFCI – the sub-underwriter – said reports.

“With so much held by the promoters, not many people are able to trade in these shares. It is a very illiquid stock,” said Mr Thunuguntla.

Tata Motors’ shares with DVRs were issued at Rs 305. On Wednesday, the stock traded at Rs 280.10, down 2.40 per cent, on the BSE. Similar shares of Pantaloon were issued at Rs 150 and on Wednesday were trading at Rs 207, up 0.80 per cent.

More Stories on : Stocks | Tata Motors Ltd

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