TML Securities Trust sold 1.15 crore shares of Tata Motors Ltd. as part of its scheme of arrangement to swap its differential voting rights shares with ordinary shares.
The trust sold new ordinary shares on the stock exchanges for distribution of fractional share entitlement as well as towards tax liabilities, Tata Motors said in an exchange filing on Tuesday.
Axis Trustee Services Ltd., the independent trustee, will now proceed to distribute sale proceeds in cash to the eligible 'A' ordinary shareholders and credit the balance NOS as per entitlement, it said.
Tata Motors had about 74.5 lakh shares or 0.3% stake change hands in two block deals during market opening on Tuesday, according to Bloomberg.
The company will cancel DVR shares, listed since 2008, by issuing ordinary shares. The automaker will issue seven ordinary shares of Tata Motors for every 10 DVRs held by investors. That's about a 23% premium over the DVRs' pre-closing price and a 30% discount over ordinary shares.
Tata Motors' decision to extinguish its listed DVR shares will have three major tax implications for investors.
The delisting constitutes capital reduction, having the same implications as a liquidation. When the shares are delisted in 12–15 months, all accumulated profits on the balance sheet at that given point will be considered a deemed dividend to current DVR shareholders. As a result, the deemed dividend would have tax consequences (withholding tax).
Different persons purchasing DVR shares at different times result in different cost bases. Long-term capital gains from these transactions will be taxed.
The cancellation requires the company to establish a new trust to accept and sell company shares. Any short-term capital gains earned during the period would also be taxed.
The share price of Tata Motors stock fell as much as 2.87% during the day to Rs 960 apiece on the NSE. It was trading 1.58% lower at Rs 972.7 apiece, compared to a 0.17% advance in the benchmark Nifty as of 2:43 p.m.
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