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The board of Tata Motors approved a ₹7,500-crore rights issue, according to the auto manufacturer’s filing with the stock exchanges.
According to the terms of the proposed issue, shareholders holding 109 fully paid-up ordinary shares of the company on the book closure date will be eligible to apply for six similar shares of ₹450 each (face value ₹2). Shareholders of ‘A’ ordinary shares (shares with differential voting rights or DVR) can also apply for six shares for every 109 they hold at ₹271 apiece (face value ₹2). The book closure date is April 8.
The company is offering over 15.06 crore ordinary shares and 2.65 crore DVR shares through the issue. The issue is subject to approval by the capital market regulator and the central bank.
The stock of Tata Motors gained 1.56 per cent on Wednesday to close at ₹541.20 while the DVR gained 1.05 per cent to close at ₹316.10.
The board also approved the buyback of non-convertible debentures worth ₹1,250 crore, which the company had issued in May 2009 and which will mature in March 2016, as part of its debt restructuring programme.
In its postal ballot form to shareholders, Tata Motors had said the proceeds of the rights issue will meet the company’s global growth plan. It expected capital outlay to remain high, at approximately ₹4,000 crore a year for the Indian business and £3.5-3.7 billion a year for Jaguar Land Rover.
Piyush Jain, Equity Research Analyst, Morningstar Investment Adviser (I) Pvt Ltd, advises investors to subscribe to the issue, given the conservative pricing, which leaves enough opportunity for stock appreciation.
‘Conservative pricing’ “The dilution is 0.5 per cent more than our expectation,” Piyush Jain said, and added “We believe Tata Motors has priced the issue conservatively at ₹450 a share.
“The proceeds will be used to fund the capital expenditure and for repayment of maturing debt. However, the higher dilution relative to our expectations is not materially significant to cause any change in our fair value estimate of ₹700 a share.”
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