After the completion of delisting of the American Depository Shares from the New York Stock Exchange on January 23, 2023, Tata Motors Ltd (TML) has two types of listed equity securities, namely Ordinary Shares and ‘A’ Ordinary Shares.
The ‘A’ Ordinary Shares carry 1/10th of voting rights of Ordinary Shares and are entitled to five percentage points higher dividend.
To further simplify the capital structure, the Board of Directors of TML, Tuesday approved a Scheme of Arrangement (Scheme) for cancellation of ‘A’ Ordinary Shares, and issue of 7 Ordinary Shares for every 10 ‘A’ Ordinary Shares as consideration (Capital Reduction Consideration).
The ‘A’ Ordinary shares were first issued by TML in 2008 and subsequently in a further QIP in 2010 and rights issue in 2015. Regulatory changes have since restricted the issuance of such instruments with differential voting rights and TML remains the only large listed corporate with such an instrument. The ‘A’ Ordinary Shares currently trade at ~ 43% discount to Ordinary Shares. The Capital Reduction Consideration implies a 23% premium on the previous day’s closing share price of ‘A’ Ordinary shares, translating to a 30% discount over the Ordinary Share price and significantly below its historical averages.
The Scheme will lead to a reduction in the outstanding equity shares by 4.2%, making it value accretive for all shareholders. The Scheme also envisages creation of a Trust with an independent third party acting as a Trustee, to operationalize the various actions required to give effect to the Scheme in accordance with applicable laws.
The Trust shall receive the Ordinary shares issued by TML to the ‘A’ Ordinary holders and will then issue the Ordinary Shares as per the Capital Reduction Consideration on a ‘net’ basis to the ‘A’ Ordinary shareholders, post settlement of applicable taxes.
The Scheme is subject to regulatory and shareholder approvals. PWC is the independent registered valuer for the transaction, with Citigroup and Axis Capital acting as fairness opinion providers for the ‘A’ Ordinary and Ordinary shareholders respectively. Cyril Amarchand Mangaldas are the legal advisor to TML for the transaction.
