Shares of Tata Motors fell as much as 2 percent after the company said it will seek shareholders' nod to raise up to Rs 7500 crore through rights share issue.
According to dealers, the reason for the fall in the stock price is two-fold: For one, the rights issue will come at substantial discount to current market price and secondly, investors are cashing out after the stock hit a record high of Rs 607.70 on Tuesday.
According to a report in The Economic Times, this is Tata Motors' biggest rights issue and the country's third biggest. In 2008, SBI had raised Rs 16,376 crore, which is the largest rights share issue yet. Prior to that in 2007, Tata Steel had Rs 9,134 crore through the route to fund its acquisition of Corus.
Analysts have told Reuters that the fund raising is aimed at retiring high-cost debt and creating additional capacities.
A report in the Mint newspaper said quoting analysts that the sales slow down in the last couple of years is taking a toll on the company's revenues, which is why the company has resorted to rights share issue. The report further states that this also means that the company cannot be dependent on Jaguar Land Rover to sustain its Indian operations.
However, there are others who think the move reflects the management's confidence in the company.
"It reflects a commitment from promoters and is a strong signal to the market, that the company is confident about its future," Prithvi Haldea, chairman and managing director, Prime Database, has been quoted as saying in the ET report.
However, given the fall in share prices, investors do not seem to believe in this argument.
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Updated Date: Jan 28, 2015 13:20:23 IST