| Tata Motors DVR's-Are Voting Rights Worth Rs 180 a share? BSE 570001; CMP Rs 445 What are DVR's? DVR (Differential Voting Rights) - These are equity shares with differential voting rights and dividend benefits. A new concept for the investor community in India, DVR's has features different from normal equity holding.
Shares issued under differential voting rights are likely to be available at a differential price, than the ordinary shares, as they carry a unique voting or dividend benefit i.e. a company can have shares where the voting right is 1 for every 10 shares and may have superior dividend pay outs say 5% over the normal dividend payout. DVR's allow investors to earn better return/higher dividends in lieu of surrendering their voting rights. It allows a company to raise money without diluting voting rights and thus helps the promoters to defend against probable hostile takeovers. 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 atleast 3 financial years. The issue of such shares cannot exceed 25% of the total issued share capital of the company. In the anomaly to above SEBI vide its circular dated July 21, 2009, in its direction to the exchanges, has asked them to amend the listing agreement, restricting companies to issue DVR's. Tata Motors-DVR's Tata Motors was the first company to issue shares with DVR's in India. It had come out with rights issue of Rs. 4,147 crores to repay part of the short term bridge loan availed by its subsidiary for financing the acquisition of Jaguar-Land Rover from Ford. These DVR shares carry 1/10 The DVR issue was done by the company at a price of Rs. 305 about 10% less than the issue price of ordinary rights at Rs.340. Trading in DVR commenced on November 5, 2008 on both the exchanges. Currently Tata Motors DVR's are quoting at Rs. 445 and Tata Motors ordinary shares are quoting at Rs. 626.00, signifying a discount of Rs.181 w.r.t. ordinary shares. The discount of Tata Motors DVR's as compared to the ordinary shares is steep and has a probable chance of it narrowing down. Unless, ofcourse if we hold the view that the Tata Motors stock itself is over-valued. |
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