DVR shares are designed to give higher dividends to owners as a form of compensation for their lower voting rights compared to holders of ordinary equity shares. The price of DVR shares is lower compared to ordinary shares, as they are often extended at discounts. Adding to it, since DVRs are offered at a discount, the higher dividend payout makes the DVR a lot more attractive in terms of dividend yields.

Will Tata Motors DVR delisting unlock value for shareholders?

The share swap ratio for converting DVR shares into ordinary shares has been fixed at 7 ordinary shares for every 10 DVRs held, implying around a 23% premium to the existing DVR market price.

This will help Tata Motors reduce the equity base by 4.2% without impacting its net debt as it would still get the DVR shares at a discount to ordinary shares, even after paying the 23% premium, says ICICI Securities in a report. The brokerage says the process may take 12-15 months and will be subject to tax treatment for the capital gains for shareholders on the back of this deal.

According to Axis Capital, the scheme of arrangement for a capital reduction of the ‘A’ ordinary shares would translate to a 23% premium to the DVR shareholders. This will result in a 4.2% reduction in the number of outstanding equity shares, making it value accretive for all shareholders, it says.

“The termination of the ADS program 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,” it adds.

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Tata Motors DVR delisting

Tata Motors DVR zooms 18% on delisting plan; will it unlock value for DVR shareholders?