Tata Motors DVR hits record high, zooms 18% on delisting plan
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What are DVR shares?
DVR stands for differential voting rights. Experts pointed out the first DVR shares were issued by Tata Motors in 2008. For example, in a company, investors get one voting right for one share. This means each shareholder has one vote per share they hold. As per experts, “DVR shares typically offer lower voting rights so they are very useful for companies that want to raise money in the market without diluting effective control of the company.
What will the conversion of DVR shares to Tata Motors shares mean?
First thing first, the conversion of DVR shares will result in a 4.2 per cent reduction in the number of outstanding equity shares, making it value accretive for all shareholders. Aditya Gaggar Director of Progressive Shares underscored that DVRs were introduced for the first time in the Indian markets in 2008 by Tata Motors. The regulatory changes have since restricted the issuance of such instruments and hence, Tata Motors remained the only listed corporate with such an instrument. "The DVRs carry 1/10th of the voting rights of ordinary shares but are entitled to 5 per cent points higher dividend. The whole procedure is expected to be completed in 12-15 months," said Gaggar.
How will it impact Tata Motors, Tata Motors DVR shareholders?
Brokerage firm Kotak Institutional Equities said there will be no cash outgo for Tata Motors and hence, it will have no impact on debt levels. In terms of taxation, ‘A’ ordinary shareholders will be taxed. Taxes will be withheld for deemed dividends and capital gains. The company will create an independent trust to operationalise the scheme and settle tax liabilities. Manish Chowdhury, Head of Research at StoxBox said the proposed scheme will simplify, consolidate and increase liquidity of all traded equity securities of Tata Motors on the BSE and NSE. "As the proposed reorganization of shares will result in a reduction in equity shares outstanding, the whole exercise would be earnings accretive for shareholders," said Chowdhury. We advise investors to check with certified experts before taking any investment decisions.