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Journalism of Courage
8216;Buddhimataam-Varishtam8217; 8212; 8216;foremost among the intelligent8217; 8212; is an exclusive epithet of Lord Hanuman. But if there is one virtue absent in the management of the firm which bears his name, Maruti, it is intelligence. I do not mean commercial genius of the calibre of a G.D. Birla or a J.R.D. Tata; no, the way in which Maruti has been mishandled suggests a lack of even common sense.Maruti was literally a misbegotten outfit. It was a dream of the late Sanjay Gandhi, a man who lacked the intelligence and the experience to produce a 8216;people8217;s car8217;.
Nevertheless, several acres of prime agricultural land in Haryana were procured at a song courtesy Chief Minister Bansi Lal. 8220;Catch the calf,8221; went one earthy explanation, 8220;and the cow shall follow!8221; A board of directors was set up, including Sonia Gandhi as 8216;Director, Technical Services8217; 8212; a post whose responsibilities remained delightfully vague.
By 1980, even Indira Gandhi was embarrassed. To clear the family name, she picked Dr. V. Krishnamurthy, a technocrat of proven excellence, to rescue her. Fresh from successes at SAIL and BHEL, he did not disappoint her. Maruti, the car as we know it, is the fruit of Dr. Krishnamurthy8217;s work, Sanjay Gandhi having contributed nothing but the name.
Unfortunately for him this earned Dr. Krishnamurthy a reputation as a Gandhi family loyalist. The Narasimha Rao regime proceeded to persecute him, an attack that included a dramatic early morning ban on his travelling to Washington to attend a Rajiv Gandhi Foundation meeting. But that is a story for another column.
The point is that when Dr. Krishnamurthy was at the helm of Maruti, he negotiated a deal where Suzuki held equity worth no more than 26 per cent, with the option of raising this to 40 per cent. Six years later, in 1987, the Rajiv Gandhi ministry permitted the Japanese firm to exercise this option.
Then in June 1992 Narasimha Rao gave Suzuki the deal of a lifetime. The Japanese firm was given a preferential allotment of new shares, raising its stake from 40 per cent to 50 per cent. The new shares had a face value of Rs 100 and a premium of Rs 169. For a miserable Rs 59.31 crore, Suzuki won equal status with the Government of India. It was not really a sale; it was a gift!
All this is in the past. The fact remains, however, that Suzuki8217;s aggregate investment to date in Maruti Udyog is barely Rs 100 crore. Maruti is worth around Rs 4,850 crore, a figure arrived at by three independent evaluators. So, the Government of India, which holds a 50 per cent stake, could expect Rs 2,425 crore when it divests its holding in Maruti Udyog.
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The worth of the Government of India8217;s holding in Maruti has been estimated at Rs 2,425 crore. But this money can be realised only by selling in the free market
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Note that the Government of India receives only dividends from its investment in Maruti Udyog. Suzuki, however, has manoeuvred itself into a position where it gets not just dividends, but also payment under the heads of royalty and technical fees, all over and above profits made by exports from Japan various car components. I understand that the foreign exchange outflow over the years has been over Rs 4,000 crore about a billion US dollars!
Suzuki has assiduously fostered the false image that they are doing this country a great service by investing in Maruti. The fact is that every single year they have taken back at least twice the amount they invested! It is the Indian taxpayer who has been paying for Maruti 8212; going back all the way to the time that land was purchased for the factory.
It is open to question, however, if the taxpayers of India will really get their money back. As I said, the worth of the Government of India8217;s holding has been estimated at Rs 2,425 crore. But this money can be realised only by selling in the free market. But the agreement between the Narasimha Rao ministry and Suzuki negotiated in June 1992 puts a question mark on this.
Why? Because the amended agreement of June 2, 1992, explicitly states that neither party may sell its stake without prior written instructions from the other party. Can the Government of India disinvest without Suzuki8217;s permission?
Further, the agreement included an indemnification for Suzuki against any breach of contract, giving the Japanese company a 8216;put option8217; right. In plain language, if there is any breach of contract, Suzuki has the right to sell to the Government of India, and India is obliged to buy any share of its stake that Suzuki chooses to sell.
Suzuki was also given the right to transfer up to 26 per cent of shares to subsidiaries and/or associates. The Japanese automobile industry is no longer what it was, and the United States8217; General Motors now owns 20 per cent of Suzuki. In effect, there is nothing to prevent the American giant from claiming a seat on the board at Maruti. What is more, Suzuki, under the rights stated above, can block the Government of India from selling its stake to any car manufacturer other than General Motors.
Under these circumstances, does anyone think the Government of India can get an optimal price for its share of Maruti Udyog? Of course, Suzuki doesn8217;t need to buy out the Government of India; with 50 per cent already in its pocket, it needs only 1 per cent more for a majority. Which makes negotiating a price all that much more tricky. Although, under Indian company law, a 26 per cent stake confers the power to block special resolutions.
Maarutatulyavegam 8212; 8216;rivalling the speed of the storm winds8217; 8212; is another of Lord Hanuman8217;s epithets. The car that bears his name isn8217;t terribly fast, but Narasimha Rao drove recklessly to make decisions about the firm. I suggest everyone slows down a bit before repeating the mistakes made ten years ago!
