'Tata Motors can go for rights issue'

MUMBAI: Companies that have class A shares or shares that carry differential voting rights can go for a bonus or rights issue on terms similar to its existing listed class A shares. These companies could also go for a Qualified Institutional Placement (QIP) or a preferential allotment to increase the liquidity of these shares.
Market regulator Sebi in its letter to Tata Motors on Monday said that the automobile company can make a fresh issue of class A shares on the same terms as the existing listed A shares by way of bonus, rights issue, QIP or preferential allotment.
Tata Motors had sought an informal guidance from Sebi following the latter's July 21, 2009 circular, which stated that a company should not issue shares in any manner which may confer superior rights to any person in terms of voting or dividends as against the rights on equity shares that are already listed.
Monday's letter also said that Tata Motors could issue Employee Stock Option Scheme (ESOP), where the options can be converted into shares with differential voting rights. Also, the company could issue Class A shares on exercise of conversion option by holders of Convertible Alternative Reference Securities (CARS). In October 2008, Tata Motors raised Rs 2,000 crore through a differential voting rights issue at a price of Rs 305 per share. The issue was largely under subscribed and its promoters, including Tata Sons, had to step in to bail out the issue.
There is a huge price gap between Tata Motors ordinary shares and its Class A shares. On Monday, Tata Motors ordinary shares closed at Rs 849 on NSE, while its Class A shares closed at Rs 574. Tata Motors is the first company to have an issue with differential voting rights.