Tata Motors, the world's fourth largest truck maker, plans to raise up to Rs 75 billion via a rights issue over the coming months, its third such offering in the company's history since it got listed in 1955.
Cyrus Mistry-led Tata Motors will be approaching shareholders for their approval to allow the vehicle manufacturer to issue new equity shares to reduce its debt load, which stood at Rs 607.74 billion as on September 30, 2014. The rights issue will be for both ordinary and class A (commonly called DVRs or differential voting rights) shareholders. Through a rights offering, a company gives its existing shareholders new shares in proportion to their current holding. Such a fund-raising method also allows promoters to avoid diluting their stakes in the company. Tata Motors' promoters, including Tata Sons, hold about 34% in the maker of Nano and Jaguar cars, which currently has a market capitalization of Rs 1,630 billion.
In case of under-subscription, Tata Motors' proposed rights issue will be mostly backed by the founders. The company's first rights offer came out in 2001 when convertible debentures were issued instead of equity shares. Subsequently in 2008, it introduced DVR shares through a rights offering, along with an issue for ordinary shares. During the second offering, its promoters picked up a significant share of the Rs 41.47 billion issue after Tata Motors share price fell well below the offer price, which also led its promoters hiking their stake in the automobile company.
In a statement to the bourses, Tata Motors said that the quantum, pricing and timing of the proposed rights issue will be decided later, depending upon the market conditions post shareholders' and other approvals. In the last one year, Tata Motors will be the third Tata entity to come up with a rights issue after Tata Power and Indian Hotels Company.
In recent quarters, Tata Motors has been raising funds mainly through multi-year debt securities to refinance borrowings and to lighten its balance sheet. Between April and October 2014, it sold bonds worth more than $1.05 billion.
Some of the retail investors will take a call on the Tata Motors rights offering if it is rightly priced. “We will subscribe to the rights offer provided the price is attractive and there is something on the table for long-term shareholders like us,” said Janak Mathuradas, a fourth-generation shareholder of Tata Motors. “We have supported the management in bad times. So I hope they will price the offer attractively,” he said.
Tata Motors on a standalone basis made a loss of Rs 18.45 billion in the September quarter of FY15, while on a consolidated basis the company is profitable with its luxury arm Jaguar Land Rover contributing strongly.
