The differential voting shares issued by Tata Motors may face price discovery problems in the secondary market.
The Rs 1,957-crore (Rs 19.57 billion) issue devolved due to tough market conditions and was subscribed mainly by the promoters, IFCI and JM Financial at Rs 305 a share.
Sources familiar with the developments said at a time when the company's stock price is hovering around Rs 150, neither the promoters nor IFCI would sell the differential voting shares at a loss.
"Therefore, who will sell in the market and at what price is the key issue," the sources said. The new class of shares is slated for listing this week.
While promoters subscribed around Rs 1,650 crore (Rs 16.5 billion), IFCI put in Rs 250 crore (Rs 2.5 billion) and JM Financial Rs 50 crore (Rs 500 million).
Tata Motors had issued 64.2 million differential voting shares at Rs 305, including a premium of Rs 295 along with an equal number of normal voting shares at Rs 340.
The promoters of Tata Motors have picked up the entire voting share lot, taking their stake in the company to 42.3 per cent.
In case of differential voting shares, the promoters had chipped in and paid over Rs 1,000 crore or Rs 10 billion (apart from their entitlement of Rs 633 crore or Rs 6.33 billion) even though JM Financial had underwritten the non-promoter portion of the shares.
After adjusting the voting rights for differential voting shares (one vote for every 10 shares), the promoters' stake in the company has increased to above 43 per cent, said a senior Tata Motors executive at a investor conference last Friday.
JM Financial, advisors to the issue, refused to comment.
A senior executive at the National Stock Exchange said it is unfortunate that the new experiment took place at a time when markets across the world went topsy-turvy.
On the issue of liquidity and price discovery mechanism of new shares, he added that since investors have not shown interest in the primary market, it is imperative that the price in the secondary market would be lower.
In case the existing shareholders are not interested at selling below the offer price, there would be hardly any demand for the share.
Sources in the Tatas said that the promoters are unlikely to sell these shares at loss.
An IFCI official added that they were long term investors and would not sell at loss.
"We will hold these shares. In the current environment, there would be notional loss on account of mark to market," the IFCI official said.
