Graphic: Yogesh Kumar / Mint

The conversion offer was for two tranches of FCCBs. For the first one, denominated in yen, the conversion ratio offered a premium of 6-8% over the redemption value that bondholders would have got in cash a year from now. For the second tranche, denominated in US dollars, the conversion ratio offered a premium of 7-9% over the redemption value. Investors have opted to convert at the top-end of that range.

According to a company spokesperson, the shares have been converted at an 8% premium to the market price of the bond or the redemption value, whichever is higher. The conversion price has been set at Rs737.48 per share, which is based on the volume weighted average share price during the offer period.

Thankfully for the bondholders, Tata Motors’ shares have risen since the offer period and now stand at Rs757.70. This will give them some more leeway in profiting from the conversion. Of course, when shares worth nearly $450 million (at current prices) hit the markets, prices may correct a bit. Unless Tata Motors’ shares correct by 12% from current levels, bond-holders can expect to realize more than $395 million by selling the shares, which is the amount they would have received at redemption, had they chosen not to convert. The fact that they will receive the funds a year ahead of schedule is an added incentive.

From Tata Motors’ point of view, while the conversion will ease things on the debt repayment front, it must be noted that equity dilution has happened at relatively low prices. From an enterprise valuation perspective, nothing has changed. According to Kotak Institutional Equities, based on the company’s current enterprise valuation, the implied value of Jaguar Land Rover (JLR) is 2.1 times the price at which the business was acquired. While things have certainly improved at JLR in the past few months, the going is certainly not twice as good as it was when the company was acquired in 2008.

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