DIIs at Sebi door to thwart Maruti move

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Oppose deal to let Suzuki own Gujarat plant

DIIs at Sebi door to thwart Maruti move
Mutual fund houses and insurance companies holding equity stakes in Maruti Suzuki India (MSIL) have knocked at the door of market regulator Sebi, seeking its intervention to safeguard investors’ interest following MSIL’s move to allow parent firm Suzuki Motor Corporation to implement its Gujarat project.

The institutional shareholders have also written a letter to the MSIL board, urging it to quash the ‘oppressive transaction’ to save the company from becoming a ‘shell’ entity.

Institutional investors together hold almost 14 per cent stake in Maruti, while its Japanese promoter Suzuki Motor Corporation holds 56.21 per cent.

MSIL announced on January 28 that it was planning to implement an expansion project in Gujarat through a wholly-owned subsidiary of Suzuki Motor Corporation (SMC), triggering investor protest.

Four insurance companies and 10 fund houses sent a joint letter to the Maruti management, calling for fair and sensible action and reminding it that a similar move had been thwarted earlier.

“Suzuki had tried this very contrivance in 2004 and the same had to be shelved perhaps because the then board of directors realised the import of such a proposal and also the government of India intervened,” the letter said.

The arguments that were valid in 2004 remain valid now, the investors pointed out. “More so, considering that MSIL has the benefit of experience of the last 10 years and holds a large cash surplus with it earning low returns,” they argued.

The letter said the only fair and sensible course of action for MSIL would be to pursue the Gujarat project on its own.

“We collectively represent adequate ownership of the equity share capital of MSIL to legitimately oppose these decisions,” the investors claimed. They argued that the move was not in the best interest of MSIL and its shareholders and “was in fact significantly detrimental to them.”

The letter has urged the Maruti management to carry out the Gujarat project under MSIL, if necessary, through a wholly-owned subsidiary. The investors claimed in a separate letter dated February 13 they had raised the issue of the extraordinarily high royalty at the rate of 5.7 per cent that the parent firm has been charging, but it remained unanswered.

Fund houses that hold Maruti shares have held an informal meeting with officials of the Securities and Exchange Board of India (Sebi) on this issue. “We have made a representation to express these concerns,” an official from a fund house said, without divulging what transpired in the meeting.

Life Insurance Corporation, another institutional investor, has separately sought a clarification from the company on the deal. A senior LIC official confirmed to FC that the insurer had raised the concerns with the company in a letter.

A chief investment officer (CIO) with another insurance company told FC: “We have said in the letter that the MSIL board decision is ill-conceived and it will result in outsourcing of the core manufacturing activity that is fundamental to MSIL.” He said the outsourcing work was being given to a wholly-owned subsidiary of Suzuki through a related party transaction on terms that are unfavourable to investors but serves Suzuki’s interests.

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