Tata Motors, a renowned name in the automotive industry, has employed an innovative financial instrument known as Differential Voting Rights (DVR) shares to attract investors. This article delves into the history of DVR shares issued by Tata Motors, highlighting their current status in the company's capital structure.
๐ ๐๐ก๐ ๐๐ฆ๐๐ซ๐ ๐๐ง๐๐ ๐จ๐ ๐๐๐ญ๐ ๐๐จ๐ญ๐จ๐ซ๐ฌ ๐๐๐ ๐๐ก๐๐ซ๐๐ฌ:
DVR shares were introduced by the Indian Government through the Companies Act, 1956, to provide companies with the flexibility to issue shares with varying voting rights. The primary objective was to allow promoters and founders to retain control over decision-making while raising funds from the public.
Tata Motors, being a prominent player in the Indian automobile sector, saw an opportunity to utilize DVR shares as a means to raise capital while safeguarding the interests of its founders and existing shareholders.
๐ ๐๐๐ญ๐ ๐๐จ๐ญ๐จ๐ซ๐ฌ' ๐๐ฌ๐ฌ๐ฎ๐๐ง๐๐ ๐จ๐ ๐๐๐ ๐๐ก๐๐ซ๐๐ฌ:
In 2008, Tata Motors made history by becoming the first Indian company to issue DVR shares under the revised Companies Act, 1956. The DVR shares were issued with differential voting rights, granting the holders fewer votes per share compared to regular equity shareholders. This enabled Tata Motors' founders and promoters to maintain a controlling stake in the company while allowing public investors to participate in the growth story of one of India's leading automotive giants.
๐ ๐๐ฎ๐ซ๐ซ๐๐ง๐ญ ๐๐ญ๐๐ญ๐ฎ๐ฌ ๐จ๐ ๐๐๐๐ฌ:
The decision to cancel them comes 15 years after its issuance. What’s also interesting to know is that it is the only large listed corporate to have had such an instrument. The holders of DVRs have different voting and dividend rights when compared to holders of ordinary shares. DVRs carry 1/10th of the voting rights of ordinary shares and are entitled to five percentage points higher dividend pay-out. Tata Motors DVRs trade at a price almost half of that of ordinary shares, and therefore, provide arbitrage opportunities to investors.
Tata Motors announced on July 25, 2023 along with its results that, upon the effectiveness of the Scheme, the company will issue 7 fully paid-up new ordinary shares with a face value of โน2 for every 10 'A' ordinary shares with a face value of โน2. This issuance will serve as consideration for the reduction and cancellation of the 'A' ordinary shares.
๐ ๐๐๐ฑ๐๐ญ๐ข๐จ๐ง ๐๐ฌ๐ฉ๐๐๐ญ:
Regarding taxation, 'A' ordinary shareholders will face taxation, which includes withholding taxes for deemed dividends and capital gains. To handle the tax liabilities, the company will establish an independent trust to execute the scheme. This trust will sell ordinary shares to cover the relevant taxes, and the remaining net ordinary shares and cash for fractional entitlement will be added to the shareholders' accounts.
This news story will serve as an excellent case study for both professionals and students alike.
