The Telegraph
Sunday , March 16 , 2014
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Maruti blinks in Gujarat plant standoff

New Delhi, March 15: Maruti Suzuki India (MSI) today said it would seek the approval of minority shareholders for its plan to outsource a new plant in Gujarat to its Japanese parent Suzuki Motor. The decision was taken at a board meeting, chaired by Suzuki Motor chief Osama Suzuki.

Institutional investors, including mutual funds, insurance companies and banks, had opposed the decision of the Maruti board to allow Suzuki to implement the Gujarat project through a 100 per cent subsidiary. The institutions had approached market regulator Sebi to seek a stay on the move, which they said could erode their shareholding value.

“Though not required by the law, the board decided as a measure of good corporate governance to seek minority shareholders’ approval as stipulated in Section 188 of the Companies Act, 2013,” Maruti said in a statement.

Three-fourth of the minority shareholders, who hold a 44 per cent stake in the company, will have to give their assent through postal ballot for the deal to go ahead. Officials said the whole process would take at least two to three months.

The company’s independent directors, who had expressed their reservations after giving an in-principle nod to Suzuki’s plans, today said Maruti could have directly invested in the plant but the middle path was an acceptable option.

“Maruti could have invested directly but it means investing the capital, employing people and complying with the law among other things. We thought this is a better option. We don’t sit quietly and accept what is given to us, we try and advice on what could be the best case scenario for the company,” said Amal Ganguli, member of the board and chairman of the audit committee, Maruti Suzuki India.

Maruti has four independent directors — former PriceWaterhouseCoopers chairman Ganguli; Pallavi Shroff, lawyer with Amarchand Mangaldas; R. P. Singh, an ex-IAS officer and former chairman of Punjab & Sind Bank; and former Ranbaxy chief executive D.S. Brar.

Maruti, in which Suzuki Motors holds a 56 per cent stake, said the “entire capital expenditure for the Gujarat subsidiary would be funded by depreciation and equity brought in by Suzuki”, putting to rest speculation that Maruti would also be investing in the plant.

Further, in case of termination of the contract manufacturing agreement between the two, the facilities of the Gujarat subsidiary will be transferred to MSI at book value and not at “fair value” as was decided earlier.

Fair value is arrived at by assessors who take into account tangible and intangible assets such as goodwill. A fair value can be higher than the book value, which is the value at which a plant is built minus the depreciation of assets.

Maruti also said the impact of taxes would be examined before finalising the pact.

Maruti Suzuki chairman R.C. Bhargava said the plant, which would manufacture 1.5 million vehicles per year, would operate on a “no-profit-no-loss” basis and profits for Suzuki would be routed through its 56 per cent stake in Maruti.