Maruti divestment on the fast track

New Delhi: The Central government is now taking up the issue of disinvestment of its shareholding in Maruti Udyog (MUL) very seriously and it has started taking major steps towards it.

Last week, disinvestment ministry secretary Pradeep Baijal categorically said the government has decided to completely exit from MUL. Following this, the cabinet committee on disinvestment announced that certain changes have been made in the disinvestment model for the company.

MUL will now float a rights issue of Rs 400 crore by the end of the calendar year and the Centres share in the rights issue will go to Suzuki Motors instead of domestic FIs as was decided earlier this year.

The government stake will come down slightly after the rights issue. MUL has a paid-up capital base of Rs 132 crore. The rights issue would see the share capital increase by a small amount.

The size of the rights issue has been fixed at Rs 400 crore because the company needs capital infusion of about this amount. Once the rights issue is completed, the government will offload its balance holding through an IPO to retail shareholders, institutions and other investors.

The crucial issue in the rights offering is the renunciation and control premium, which will go the government exchequer. These elements of the rights issue will have to be negotiated with Suzuki in accordance with the prevailing global practice. The renunciation premium is for forgoing the government''s portion of the rights in favour of Suzuki. The control premium is for handing over control of Maruti to Suzuki, as the government''s holding will fall below the existing level of 50 per cent after the renunciation, and make Suzuki the largest shareholder in Maruti.

The changes in the disinvestments model are due to the fact that domestic FIs, who till February this year were keen to pick up shares in MUL, have turned shy prompting the government to renounce its portion in favour of Suzuki.

While this puts to rest speculation that the government is considering an alternate model for disinvesting its share in Maruti, it now puts the ball in Suzukis court which has to decide if it wants to subscribe to the government''s portion of the rights offering.

The government is expected to begin the process of appointing the valuers on 1 October. It has been announced that three valuers would be appointed to complete the valuation process of the company and decide on the premium to be fixed on the rights issue.
Since early this year the company has been stressing on increasing profitability and has taken a number of measures to achieve it.

Last week, MUL announced its first-ever voluntary retirement scheme, setting off speculation that this was but the first step towards divestment of the governments shareholding in the company. The speculations have proved right.

It now remains to be seen whether MULs future owner is Suzuki Motor Corp or General Motors Corp.