After delisting the American Depository Shares from the New York Stock Exchange (NYSE) earlier this year, the board of Tata Motors on Tuesday approved the cancellation of its entire ‘A’ ordinary shares.

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The move is considered as a bid to simply its capital structure, where the owners of 'A' shares, who enjoy higher dividends over normal shareholders, but entitled to one vote for every ten ‘A’ shares held, will be now be issued ordinary shares, the company said in an exchange filing.

The company is to issue seven ordinary shares for every 10 'A' shares, translating a premium of 23 percent to the ‘A’ shareholders. Further, the cancellation will also reduce the company’s outstanding shares by 4.2 percent. While the cancellation process is expected to take 12-15 months, the process will also witness a 3.2 percent dilution in promoters voting rights.

In fact, Tata Motors remains the only large listed entity with differential voting rights (DVR) in India. The company first issued its DVR in 2008 and subsequently expanded its equity base through QIP in 2010 and another rights issue in 2015. However, the regulatory changes have since then restricted the issuance of such instruments that carry differential voting rights.

Interestingly, the 'A' ordinary shares, which are trading at about 43 percent discount to normal shares have outperformed with 82.1 percent gains so far this year, against the ordinary shares gain of 64.8 percent during the same period.

Even on Tuesday, 'A’ shares listed on the NSE outperformed the ordinary shares. While the ‘A’ category shares surged 4.6 percent to close the session at Rs 374.4 per piece, the ordinary shares of the auto major gained 1.6 percent to settle at Rs 639.45. On the other hand, the benchmark Nifty closed marginally higher at 19,680.60 points.

The transaction is subject to approvals from both regulators and shareholders.

First Published:Jul 25, 2023 6:12 PM IST