Tata Sons, the promoter of major operating companies of the Tata Group, will increase its shareholding in Tata Motors to 43.73 per cent after the proposed Rs 6,500 crore preferential issue by the automobile manufacturer.
Last week, Tata Mortors' board had approved raising of Rs 6,500 crore via preferential allotment of securities to Tata Sons.
Explaining the reasons for raising funds from its promoters, Tata Motors said the domestic business has been hit by slowdown which "significantly impacted sales volumes, profitability and cash flows and increased the net debt to unsustainable levels".
Tata Motors group has a net debt of Rs 50,000 crore out of which Tata Motors Ltd alone account for Rs 20,000 crore.
"Though the company remains optimistic on medium to long-term growth in the Indian market, the near-term demand situation is fluid and the slowdown has come at an inopportune time when capital expenditure intensity will remain high due to continued focus on exciting products and BS VI transition," Tata Motors said.
Also, the company said its British arm Jaguar Land Rover continues to face risk from external factors despite improvement in performance and recovery in China.
"However, JLR continues to face risks from a slowing global economy, Brexit related uncertainties, trade wars and disruptions from ACES (autonomous connected electric shared)," Tata Motors said.
JLR will require continued investments in products and technologies to drive growth in this situation, it added.
"Hence despite improving business fundamentals, these external risks could impact the company's and JLR's credit ratings and ability to refinance competitively," Tata Motors said.
The company further said, "The preferential allotment to its promoter, at a premium to the current market price, was chosen to minimise dilution impact and for a successful and speedy execution".
As part of the fund raising plan, Tata Motors will issue up to 20,16,23,407 ordinary shares at a price of Rs 150 per share aggregating Rs 3,024.35 crore.
It will also issue up to 23.13 crore (23,13,33,871) convertible warrants each carrying a right to subscribe to one ordinary share per warrant, at a price of Rs 150 per warrant aggregating Rs 3,470 crore.
Tata Motors' board had also approved in principle raising of additional funds up to Rs 3,500 crore through external commercial borrowings.
The company said the EGM will be held on November 22 and the ordinary shares and warrants will be allotted to Tata Sons within a period of 15 days from the date of passing of this resolution, subject to regulatory approvals.