Institutional shareholders are mulling approaching Sebi on the issue; They have also raised concerns over royalty paid by Maruti to its Japanese parent

KOLKATA : Maruti Suzuki India Ltd is seeking help of its largest minority shareholder Life Insurance Corp of India to push the plan for transferring the rights for setting up a greenfield manufacturing unit at Mehsana in Gujarat to its parent Suzuki Motor Corp, sources said.

Maruti Suzuki’s decision to allow Suzuki Motors, majority shareholder, to make cars at the new plant and enter into sourcing agreement for buying the cars hasn’t gone down well with its institutional investors who believe arrangement will eventually turn Indian automaker into a distribution company from a manufacturing one.

With institutional shareholders teaming up to stymie the proposal, Maruti approached the insurance behemoth seeking help in convincing other institutional shareholders and getting them in line.

“LIC’s decision would be crucial for Maruti to go ahead with its plan. Hence it (Maruti) is trying to take it on its board,” a source said confirming the development. LIC holds close to 7% stake in Maruti Suzuki. The company’s Japanese promoter Suzuki Motor holds around 56.21% stake.

More than half a dozen fund houses such as Axis Mutual Fund, DSP Blackrock, HDFC MF, Prudential ICICI, Reliance MF and SBI MF are opposing Maruti Suzuki’s decision to allow Suzuki Motor to set up plant instead of its Indian listed subsidiary.

These investors have asked Maruti Suzuki’s board to review decision as it will lead to all incremental volumes getting outsourced to the parent’s subsidiary and the listed entity evolving into just a trading company. According to these investors, at an annual growth of 15%, Maruti Suzuki would be selling around 5.5 mln cars per year by 2025 of which nearly 72% will be outsourced.

Maruti Suzuki shares had dropped to 1,540.40 rupees on Jan 28, from 1,702.00 rupees the previous day, following the announcement, but have recovered since.

LIC though is yet to take a stance on the dispute between promoters and minority shareholders of Maruti Suzuki. However, the insurer has sought more details from the car-maker on issue, senior LIC officials said.

“We have sought details from Maruti. We are in touch with the opposing investors, we are aware of their stance,” an LIC official said. However, LIC official declined to comment when asked whether the insurer will act as a peacemaker between the company and the unhappy institutional shareholders.

“We can’t comment on what would be our role. We are in touch with both the promoters and the other shareholders. Being the largest shareholder it is our duty to look into the interest of the company. We would take all this into account while taking our decision,” another LIC official said.

In January, Maruti Suzuki announced that Suzuki Motor Corp will set up a wholly-owned subsidiary — Suzuki Motor Gujarat Pvt Ltd — which will look after all operations of the upcoming 30-bln-rupee Mehsana manufacturing plant in Gujarat. Maruti Suzuki will handle sales.

Maruti Suzuki had acquired 1,190 acre of land in Mehsana district in 2011 for its expansion plans that will now be transferred to the parent Japanese company which will pay an annual rental fee.  -Cogencis

Meanwhile, PTI reports that Maruti Suzuki India’s institutional shareholders are considering further options, including approaching Sebi on the issue. A seven-page letter written by seven mutual funds to Maruti Suzuki India Chairman R C Bhargava highlights investor concerns arising from the deal.  There are expectations that a meeting can be held between Maruti Suzuki India and fund houses in a day or two, sources told PTI. The marker regulator’s intervention would be sought in case of unsatisfactory response from the company, they added.

The fund managers also raised concerns over the royalty paid by Maruti to its Japanese parent. Besides, they also sought explanation of certain terms like incremental capex with respect to the deal.

According to them, with this pace and assuming a 15 per cent growth in annual sales over the next 20 years, Maruti Suzuki India would be paying a royalty of Rs 41,900 crore.

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