Tata Motors DVR shares soar 17% post cancellation: What it means for shareholders

This significant surge came in the wake of the company's decision to cancel DVR shares and convert them into ordinary shares, leading to positive sentiments among shareholders and investors. Tata Motors' DVR (Differential Voting Rights) shares surged nearly 17 per cent on Wednesday to reach a fresh 52-week high on the Bombay Stock Exchange.
This significant surge came in the wake of the company's decision to cancel DVR shares and convert them into ordinary shares, leading to positive sentiments among shareholders and investors.
In this article, we delve deeper into the concept of DVR shares, the reasons behind Tata Motors' decision to convert them, and how it will benefit the company and its shareholders.
DVR shares are a unique class of shares that grant different voting rights to their shareholders compared to regular equity shares.
In 2008, Tata Motors introduced DVR shares for the first time. These shares may carry either more or fewer voting rights than regular shares, depending on the company's structure.
In the case of high-differential voting rights, shareholders have more voting power compared to regular shareholders, while low-differential voting rights (DVRs) offer fewer voting rights.
The conversion decision
Tata Motors recently announced that it will convert its DVR shares to ordinary shares. The move is part of a scheme aimed at issuing 7 fully paid-up new ordinary shares with a face value of Rs 2 for every 10 'A' ordinary shares with a face value of Rs 2.
This issuance will serve as consideration for the reduction and cancellation of the 'A' ordinary shares, leading to a 4.2 per cent reduction in the number of outstanding equity shares.
The move to convert DVR shares comes months after Tata Motors decided to delist American Depository Shares (ADS). It is likely to further simplify the capital structure.
How will Tata Motors shareholders benefit?
The conversion of DVR shares to ordinary shares is expected to be value accretive for all shareholders.
The capital reduction consideration translates to a 23 per cent premium to the 'A' ordinary share price, resulting in EPS (earnings per share) accretion for shareholders.
Furthermore, the reorganisation of share capital will simplify and consolidate the company's capital structure, preserving liquidity.
For DVR shareholders, the conversion will result in seven ordinary shares (face value of ₹2) for every 10 DVRs held, offering a premium of 23 per cent over the previous day's closing price of DVR shares and a 30 per cent discount to Tata Motors' ordinary shares.
The conversion will effectively function as a buyback without any cash outgo, which means there will be no impact on the company's net debt, according to market experts.
Tata Motors' decision to convert DVR shares and consolidate its capital structure is expected to have a positive impact on the company.It will simplify and consolidate trading of Tata Motors equity shares, leading to better transparency and efficiency in the market. Additionally, there will be no cash outgo for the company, and hence, it will have no impact on its debt levels.
The termination of the ADS (American Depositary Shares) along with the proposed scheme of capital reduction of 'A' Ordinary shares will simplify and consolidate all traded equity securities of Tata Motors into Ordinary Shares listed only on NSE and BSE, according to experts.Earlier in January, Tata Motors said the voluntary delisting of its American Depositary Shares, representing ordinary shares, from the New York Stock Exchange, would become effective close of trading on January 23, 2023.