The pressure is set to mount on Maruti to review a board decision allowing parent Suzuki Motor Corp to implement a proposed Gujarat car manufacturing project on its own, with LIC — the largest institutional investor in the company — set to take up the matter with the carmaker. If LIC were to step in, it could bolster the position taken by the other institutional investors against the company’s decision.
Meanwhile, raising fresh concerns, the mutual fund houses, which have a stake in Maruti Suzuki India Ltd (MSIL), having been joined by other insurance sector stakeholders, sent in a fresh petition asking Maruti Suzuki’s board to rescind the “value-eroding, oppressive transaction” that could render the listed firm into just a “shell” entity.
While LIC has not joined the battle yet, at least four individuals involved in the matter have confirmed The Indian Express that the public sector insurer has also informally met the group of institutional investors. A source close to the development confirmed that LIC MD Sushobhan Sarker met the group of institutional investors and had communicated it will take up the matter with the company directly.
Sarker could not be reached for comments. When contacted another LIC MD, SB Mainak denied LIC having met the group of institutional investors.
LIC holds 6.9 per cent stake in MSI as of December 2013. The domestic institutional investors hold an aggregate of 13.98 per cent stake.
In a fresh letter dated March 5, 2014, addressed to chairman RC Bhargava and the 11 directors on the board of MSIL, 16 institutional investors — 12 mutual funds and 4 life insurance companies — have stated that the company’s decision will, over a period of time, convert MSIL into a ‘shell company’ and is detrimental to the interests of the shareholders of MSIL.
“The decision of the MSIL board is ill-conceived in its entirety and results in outsourcing of the core manufacturing activity that is fundamental and critical for MSIL,” the new letter has said, adding that the outsourcing has been given to a wholly owned subsidiary of Suzuki on “unfavourable terms” to MSIL and its shareholders and “favours” the prospects of Suzuki.
The group of institutions have also raised questions on the role of independent directors and called for scrutiny of their role in accepting this decision. “It is a subject matter of debate and scrutiny that MSIL directors have chosen to lend themselves to such a blatantly wrong and value eroding oppressive transaction,” the letter. The investors have asked whether Suzuki’s proposal was benchmarked with other alternatives to see whether the proposal was the most attractive one.
Meanwhile, it is learnt that the independent directors in the company had also raised their objections to the deal and also wrote a letter to the management. “Independent directors had raised reservations on the deal and also written letter to the management,” said a MSIL board member.