In 2008, Tatamotors issued shares with Differential Voting Rights (Symbol: TATAMTRDVR) to shareholders in a rights issues (one DVR for every 6 shares, and also one regular share for every six held). (Read an EQM article on this) The idea was that the DVR would hold only 10% voting rights as the regular share, and would get a 5% higher dividend (that is, if dividend was Rs. 2 per share, DVRs would get Rs. 2.10)
The DVR started off okay, but eventually traded at a discount. Now, the discount is 45% – trading around Rs. 100 as the stock trades at 190 or so, and the “spread” keeps widening:
Note that there is no need for “convergence” – for the two prices to come together. The only difference is liquidity and the lower voting rights.
If you’re looking for hte obvious arbitrage – short futures and long the DVR – you may be in for a really long wait if the two prices don’t converge. On the other hand, the dividend yield is nearly double the Tata motors yield just because of the price difference.
But hey, would love your thoughts.
