Maruti's minority shareholders continue to oppose Suzuki plant

12 March 2014

The stand-off between Maruti Suzuki India Ltd (MSIL), the country's largest carmaker, and its minority investors seems to be worsening despite MSIL's recent peace overtures, as the fund houses that own these shares remain adamant against the plan of Suzuki Motor Co to set up a plant in Gujarat.

Minority investors have threatened to take action, and plan to approach the Securities & Exchange Board of India over the setting up of a separate plant in the country by Suzuki Motor Corp, the Japanese parent of MSIL which owns about 56 per cent of the company's shares.

As many as 16 minority shareholders in MSIL continue to oppose the move, which they feel will dilute the value of MSIL. They include major fund houses like HDFC Asset Management Co., Franklin Templeton Investment Management Ltd, and DSP BlackRock Investment Managers.

They have termed Maruti's move as ''blatantly wrong and value eroding oppressive transaction'' in a second letter to the board in as many months.

Maruti Chairman R C Bhargava has confirmed the letter and said the company will stand by its decision. The seven fund houses, including ICICI Prudential Mutual Fund, Reliance MF and UTI MF, may again approach MSIL and also Suzuki Motor over the proposed Gujarat project, according to a PTI report citing sources.

The Fund houses are planning to approach SEBI in a day or two with regard to their concerns over a proposed deal to transfer a Gujarat plant by MSIL to its parent firm Suzuki Motor Corp, the report adds.

These seven fund houses together hold 3.93 per cent stake in MSIL, while 6.93 per cent stake is held by state-run Life Insurance Corp ((LIC), which has also sought clarifications from the company on the Gujarat plant.

Suzuki Motor Corp last month had decided to take over the setting up of a plant in Gujarat, proposed by subsidiary MSIL. The parent company would invest in the plant through wholly-owned unit Suzuki Motor Gujarat Pvt Ltd, which will manufacture vehicles exclusively for MSIL.

Mutual funds are opposing Suzuki's move to make the proposed Gujarat unit its wholly-owned subsidiary as the deal would transform MSIL into a distribution company from a manufacturing one.

While SEBI is yet to hear officially from the fund houses, it is already looking into the matter on suo motu basis.

Under the market regulator's new corporate governance norms, this deal can be construed as related party transaction requiring approval from public shareholders, but these new regulations are yet to come into force and would be effective from 1 October.

Last month, mutual fund houses had written a letter to Maruti Suzuki India Chairman R C Bhargava highlighting investor concerns arising from the deal; whereupon MSIL replied in placatory terms. (See: Investors don't buy Maruti pleas; to move SEBI over Suzuki plant).


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