Tata Motors offer may be in trouble

The Rs. 4,145 crore rights issue of Tata Motors is under a cloud as the share price is now ruling below the rights offer price.

The company’s stock, which has slumped 33 per cent in the past one month, closed today at Rs 291.45, or 14.41 per cent, below the issue price of Rs 340 for the ordinary shares. The price is 4.44 per cent below the ‘A’ class shares, which are being offered at Rs 305. The 'A’ class shares carry lesser or differential voting rights, but will fetch a higher dividend.

However, a Tata Motors spokesperson discounted rumours on the fate of the rights issue and said it would go ahead with the offer plan.

Tata Motors’ rights offer, which opened on September 29, will close on October 20. The stock has declined 21.92 per cent since the opening of the issue. Tata Sons, the holding firm, plans to buy or make arrangements to buy unsold ordinary shares in the ongoing rights issue.

Analysts say retail investors are unlikely to participate in the rights offer given the free fall in the markets. India’s benchmark Sensitive index has declined 48 per cent this year, while Tata Motors’ stock has slumped 59 per cent in the period.

“A dismal sales volume of the company’s commercial vehicles, hurt by higher interest rates and fuel costs have kept fleet operators away, resulting in the vehicle makers’ stock being hammered in the market. Tata Motors’ shares are still bleeding and have not shown any sign of recovery,” said a Mumbai-based analyst.

The rights issue is aimed at part financing its $2.3-billion acquisition of Jaguar-Land Rover. JM Financial, the lead manager to the offer, has underwritten 67 per cent of the issue with differential voting rights (DVR) shares, which are expected to raise Rs 1,964 crore. The plain-vanilla rights issue of Rs 2,185 crore is up for buying by the existing shareholders.

Tata Motors recently sold a little over 10 million Tata Steel shares, worth Rs 485 crore, to Tata Sons to create a corpus for repaying short-term loans that the company raised for the Jaguar-Land Rover Deal.

Sliding stock markets and a steady decline in its share price had forced the company to change the structure of its rights issue earlier this year. The company also abandoned plans for issue of convertible preference shares. Instead, the company decided to raise the amount by divesting some of its investments, which is expected to continue for another six months or so.