The retail investors and mutual funds are set to get a raw deal in the proposed conversion of Tata Motors DVR (differential voting rights) to ordinary shares.

The public DVR holders and mutual funds will lose about ₹15,568 crore and ₹3,000 crore of economic value, while the promoters will gain 1.4 per cent economic share valued at about ₹5,000 crore, per the April 18 closing price.

Post conversion, the promoters holding in Tata Motors will increase to 42.62 per cent from 41.23 per cent, while that of public will slip to 57.38 per cent from 58.77 per cent.

Per the proposal, the company will issue 7 ordinary shares for every 10 DVRs held by investors. This translates to 30 per cent discount. With the promoters holding just 7 per cent in Tata Motors DVR, the proposal has to gain majority of minority investors. The e-voting will be open between April 26 and April 29.

In response to businessline query, a Tata Motors spokesperson said DVR shares used to trade at 40-50 per cent discount over ordinary shares for several years but was valued at only 30 per cent discount. In fact, post announcement of the scheme, DVRs moved up more sharply showing that the DVR holders had benefited the most, he said.

Tata Motors is the only material listed company to have DVR shares which have fallen out of the regulators and investors favour since 2009. The present scheme to cancel DVR and issue of ordinary shares as consideration was in response to numerous representations received from DVR holders, he added.

The DVRs of the company had more than doubled to ₹660 a piece on Tuesday from an average price ₹399 in August. Both type of shares have equal economic right and after accepting that DVRs have traded at sharp discount due to absence of proper market, the company has taken the market approach to ascertain higher weightage for ordinary shares, said Sivakumar R, a retail investor.

Nirav Karkera, Head-Research, Fisdom, said the DVR has been a distinct instrument with differential voting rights that comes along with access to higher dividend yields.

Swap ratio, valuation

Tata Motors spokesperson said the swap ratio was determined by independent valuer PWC after considering various internationally accepted methods for valuation and SEBI pricing guidelines. Further, independent merchant bankers Citi and Axis Capital have given their fairness opinion while three proxy advisory firms have recommended voting in its favour, said the spokesperson.

The transaction will be a win-win for all as it will streamline and reduce the share capital of the company by 4.2 per cent making it EPS accretive for all shareholders, he added.

Globally, the shares with reduced or no voting rights trade at premium or about the same price to ordinary shares. For instance, the class C shares of Alphabet (Google) with no voting rights trades at a premium to ordinary shares.