Govt releases hand brake on Maruti Ltd

The value of the government’s half-stake in Maruti was valued at Rs 2,167 crore by the three valuers appointed by it and Suzuki some months ago.

Details of the final agreement between the two equal partners of Maruti Udyog were announced today after a meeting of the Cabinet Committee on Disinvestment (CCD) which was chaired by prime minister Atal Behari Vajpayee.

Speaking to the press after the CCD, Disinvestment Minister Arun Shourie said that the deal between the government and Suzuki worked out well despite the fact that the hands of the government were tied in the negotiations.

Shourie also added that earlier in 1992 when the government’s holding in MUL was reduced to 50 per cent, no control premia was charged by the government.

According to the negotiations, Suzuki will pay the government an out-and-out amount of Rs 1,000 crore as ‘control premium’ for handing over control of Maruti — in comparison, when Narasimha Rao diluted the government’s controlling stake by allowing Suzuki to up its stake from 40 percent to 50, Suzuki had paid only Rs 32 crore.

In addition, Suzuki will pay around Rs 200 crore for subscribing to the government’s share of the Rs 400 crore rights issue to be floated soon. Once the rights issue is floated, the government will offload another 36 lakh of its Maruti shares in the market — and these will be underwritten by Suzuki at Rs 2,300 per share.

This is expected to happen by March 2003. So, if for some reason, such as the depressed sentiments in the stock market, the government is not able to get a good price for these shares, Suzuki will buy them for Rs 828 crore. Advisors for this process would be appointed within 30 days.

While the Maruti sale means a big bonanza to the beleagured Finance Minister whose budget has a gaping hole in it, the move is critical for Maruti as well.

A huge stand-off between the government and Suzuki over the years, for instance, has played havoc with Maruti’s profits. A fight over the new engines, for instance, ensured Maruti didn’t have environment-friendly engines when the Supreme Court ruled only Euro-I engines could be sold in the National Capital Region, and this meant no cars could be sold in Delhi for several months.

Then, even after relations had improved considerably, the government didn’t allow Maruti to dismiss its militant trade union leader, responsible for a major strike in the plant two years ago. Call it coincidence, but after the union leader was finally dismissed last year, and a new agreement was signed with the unions, Maruti’s productivity improved dramatically.

For Suzuki, despite the high price — General Motors, by comparison, has paid just $251 mn last month for 42.1 per cent equity in a company which would buy out select operations of Daewoo — the deal is also a winner.

Maruti Udyog is its most profitable venture anywhere in the world, including in Japan itself. And in no market in the world does Suzuki have a 60 percent-plus share of the automobile market. That apart, the company has generated additional profits of Rs 374 crore in 2001-02 as compared to the previous year — one of the sharpest turnarounds seen in the auto sector in recent years.