Monday, July 26, 2010

Sponsored ADR of Tata Motors Differential Voting Rights (DVR)

Sponsored ADR refers to issue of ADR, but not by the company but by its share holders (may be promoters). The proceeds of the sale of ADR goes to its shareholders who have tendered share in sponsored ADR. Also if the Tendering of shares are more than issue size, the shares are accepted on pro-rata basis.

Taking from our last blog on DVR ON 14th April, we know that as of now 3 companies have issued DVR (Tata Motors, Pantaloon Retail & Gujarat NRE Coke). They are traded in the range of 25% to 40 % discount to equity price. Such huge discount in price is uncalled for and such steep discount should evaporate in long run.

Tata Motors is exploring the option of issuing sponsored ADR for its DVR, Internationally discount on DVR is not more than 20 % and as low as 5 %. Tata may be intending to sell part of its holding in such sponsored ADR. It is a right move for Tatas to sell their stake as they will get better price and there will be no impact in its stock price.

But I doubt about the pricing of the DVR, ADR may at the best be able to command 15% discount to its stock price. Looking at the returns from current price there is at the most 10% to 12% to be made from this price.

Infosys have done a successful Sponsored ADR, but in their case, the scenario was that ADR was already quoting at huge premium and there was huge appetite for Infosys stock, The returns were simple to calculate.

Tatas may be successful in selling their stake but there is no big money left on the table to be made.for  retail  Investors or Traders. Let us understand the scenarios.

 a) If such exercise is started it will take at least 6 months to materialise, (Getting the Book Runners, getting statutory permission in both countries, Notice to Investor, Placement with Clients and then distribution of Funds)

b) There will be cost of carry for such period.

c) There is probability of price going up as well as down, (Upside looks blink, Downside as Tata Motor is also looking for issue of Rights and Placements)

d)  Hedging the price risk is concern as Futures price of TELCO is known to move between Backwardation and Contagion.

e) Till that time you may be exposed to Exchange rate risk also.

 f) 15% Discount to spot price of TELCO is a best case Scenario, there can be steeper discount.

Current price of Telco is around 830/- and Hypothetically if they are able to place the DVR at 15 % discount the Price would be 705/-. Current DVR price is more than Rs 600/- . So there is 100 Rs on the table. but if we consider the cost of carry for 6 months the Interest cost would be Rs 35/-. That apart there will be Exchange rate risk and there can be more downside if Rollover is done in backwardation.

There is also no antecedence in India about corporate announcement in such DVR, Take a case If Tata comes with right of TELCO shares in futures, Would DVR holder be allowed to participate and How would they be allowed to participate. Such things do not have antecedence which will lead to bigger discount on DVR till such things are sorted out.

Overall, It is not worthy to Invest in Tata DVR with a view to sell in Sponsored ADR, but if you are bullish on TELCO , Yes, it is a good bet as Downside would be lesser and upside would be more in percentage terms.


  1. came here through ur linkedin link...good stuff I must say...Keep posting!

  2. Since DVR of TTM is trading at a massive 43% discount to TTM with promoter holding of just 19%, I guess this is the right time to buy TTM-DVR.
    My analysis is documented at

  3. Very impressive post this is.Got to know good updates on market here. Service providers like epic research also shares live updates on social media platforms.