The board of directors of Tata Motors Ltd has cleared a rights issue to mop up close to ₹7,500 crore today.

But the share entitlement ratio and the price fixed for the rights issue at a near 20 per cent discount to the current market price of the stock as well as the TML-DVR did not enthuse the market explaining their rather muted response to the announcement.

In a notification to the stock exchanges, the company said that its board at its meeting today approved the proposal for the rights issue of ordinary shares of face value of ₹2 each and ‘A’ ordinary shares of face value of ₹2 each.

The ratio of issue entitlement for both types of shares was the same- 6 :109 ( 6 fully paid-up ordinary shares/ `A’ ordinary shares (DVR) for every 109 shares/DVRs held as on the book closure date).

While the issue price was set at ₹450 per ordinary share (including premium of ₹448 per share), for the DVR, the issue price would be ₹271 per share (‘A’ ordinary share) including premium of ₹269 per DVR. The total size of the issue would be up to ₹7,500 crore, the statement said.

The total number of shares that would be offered through the issue would be up to 15,06,44,759 ordinary shares and up to 2,65,30,290 'A' ordinary shares (DVRs).

The TML board also approved the buy-back of Secured Non-Convertible Debentures issued in May 2009, whose maturity date is March 31, 2016, with a face value of ₹1,250 crore. This was being done as part of its debt restructuring programme to ensure a "healthy debt equity mix, balanced maturity profile, better terms that would include lower cost of debt", the company said.

But the response of the market to the rights issue announcement of TML was rather muted with both the TML shares and DVR gaining only marginally. While the DVR gained ₹2.35 to trade at ₹315.15, the shares were up by ₹5.65 to ₹537.90 on the NSE.

The reaction could be because while the entitlement ratio of 6: 109 may have been found to be unattractive, the price fixed was only about 20 per cent less than the prevailing market price, leaving little room for further appreciation in a volatile market.

Earlier, in an explanatory statement attached to the postal ballot to seek shareholders’ nod for the proposal, TML said that it expected the total capital outlay to remain high in the near term (up to an average of ₹4,000 crore/year for the India business and GBP 3.5-3.7 billion per annum (approx. $5.3 to 5.6 billion for JLR and similar elevated levels for each business in the next 2-3 years. It said though it would seek to meet a significant part of the total investment needed through cash flow from its global operations, it considered it to be "prudent at this stage" to raise funds.

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