Tata Motors DVR Shares To Be Canceled. Will You Lose Your Shares?
Tata Motors is canceling its DVR shares to simplify its capital structure. Existing DVR shareholders will receive regular shares in exchange, but at a discounted price compared to regular share prices.
This move is seen as positive for investors and may lead to higher earnings for the company in the future.
Tata Motors is a company that offers two types of shares: regular shares and DVR shares. DVR stands for “Differential Voting Rights.”
Regular shares and DVR shares have some differences in voting and dividend rights. DVR shares carry only 1/10th of the voting power of regular shares. However, DVR shareholders receive a dividend payout that is five percentage points higher than regular shareholders.
Now, Tata Motors has made an announcement to cancel the DVR shares. This decision is part of their effort to streamline their capital structure. The move comes after the company delisted its American Depository Receipts (ADR) six months ago.
The issuance of DVR shares happened 15 years ago, and Tata Motors was the only major listed company to use this financial instrument.
The value of DVR shares is usually about half the price of regular shares, creating an opportunity for investors to benefit from the price difference.
Under the scheme of arrangement, existing DVR shareholders will receive seven fully paid-up ordinary shares for every ten DVR shares they currently hold. This means that if you are holding DVR shares, you will get regular shares in exchange at a specific ratio.
The capital reduction consideration includes a 23% premium based on the previous day’s closing price of DVR shares.
However, even with the premium, the new ordinary shares will be offered at a 30% discount compared to the ordinary share price.
The decision to cancel DVR shares and the good results of Tata Motors in the first quarter have been seen as positive for investors.
Some experts believe that the scheme of cancellation will lead to a 4% increase in earnings per share (EPS) for Tata Motors, which is expected to be completed within 12-15 months.