Under fire from investors, Maruti Suzuki India said on Saturday that it will seek minority shareholder approval to set up a plant in Gujarat as a unit of parent firm Suzuki Motor Corp (SMC). This comes after the proposed move drew flak from the company’s institutional investors, including mutual funds and insurance companies.
The decision was taken at a crucial board meeting held in New Delhi, which lasted for over four hours and attended by parent SMC chairman Osamu Suzuki.
“We are not required by law to seek minority shareholders’ approval but the board decided to do so as a measure of corporate governance,” Maruti Suzuki India (MSIL) chairman RC Bhargava told reporters after the meeting.
He said three-fourth of the minority shareholders, who hold 44 per cent stake in the company, would have to approve the proposal through a special resolution.
A company statement, issued after the board meeting, said that in case of mutual agreement to terminate the contract manufacturing agreement, the plant would be transferred to Maruti at book value.
SMC, which owns 56 per cent of Maruti, in January announced plans to invest $488 million (around Rs 3,050 crore) in a new plant in India, shelving an earlier plan for Maruti to set up the factory itself. The move has been opposed by institutional investors of MSIL.
In a letter to the MSIL management dated March 5, a group of 16 fund managers said the plan would shift manufacturing activity away from the Indian company and effectively turn it into a “shell company” of the parent.
Bhargava also said the entire capital expenditure of the Gujarat subsidiary will be funded by depreciation and equity brought by parent SMC without “mark-up”, as was earlier proposed.
An official at one of the fund houses, which has been opposing the proposal, said the decisions taken by the board appear to be conciliatory. “The decision to seek minority shareholders’ approval is a welcome move. We will firm up our official stand after studying the details of the board decision and discussion the details with the other investors,” the official added.
In January, SMC announced that it would set up the Gujarat factory by 2017 through wholly-owned unit Suzuki Motor Gujarat. The plant, which will be the first fully-owned factory of the Japanese giant in India, will have an initial capacity of 100,000 cars a year, all of which will be supplied to Maruti Suzuki.
Maruti had originally proposed to set up the plant near Mehsana and had in 2012 bought land. Opposing the move, MSIL’s institutional investors approached capital markets regulator Sebi, seeking its intervention to safeguard minority shareholders’ interests and to ensure compliance with good corporate governance norms with regard to the transfer of a Gujarat project to the car-maker’s Japanese parent.
Separately, state-run Life Insurance Corporation of India had also sought clarifications from MSIL about the Gujarat project.