Tata Motors DVR's shares hit new high on arbitrage buying

economictimes.indiatimes.com:

Tata Motors' shares with Differential Voting Rights (DVR) rose as much as 17% to an all-time high in trading on Wednesday as traders lapped up the stock to bet on an arbitrage opportunity with their ordinary listed shares. The buying frenzy followed the announcement by Tata Motors to cancel class 'A' shares, also known as shares carrying differential voting rights or DVR, and convert them into ordinary shares. DVR shares trade like ordinary shares but with lower voting rights.

This share category has 1/10th voting rights but a 5% higher dividend.Tata Motors DVR hit an all-time high of ₹437 on Wednesday before closing at ₹418.30 apiece, up 11.73% from the previous close. Tata Motors closed at ₹640.60 As per the arrangement, shareholders of Tata Motors DVRs would receive seven fully paid-up shares of Tata Motors for every 10 DVRs held by them. Based on Tuesday's closing price, the spread between Tata Motors DVR and Tata Motors Ordinary shares as per the share conversion was nearly 20% (374.40x10 — 639.45x7).

After the rally on Wednesday, this spread shrunk to about 7%. Over 4 crore DVR shares exchanged hands on the BSE and NSE, nearly 14 times the combined daily average volume for the last one month. The move to cancel DVRs closely follows the delisting of the company's American Depository Receipts or ADRs as Tata Motors.

«This in turn 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 post paying the 23% premium,» said ICICI Securities in a note to clients. Analysts believe the share conversion procedure may take about 12 months to complete. «Post the restructuring, promoters' economic interest in Tata Motors will