Maruti to be the sole driver in car unit arm

Auto major Maruti Udyog Ltd MUL today announced that it will buy out Suzuki Motor Co8217;s stake in its subsidiary Maruti Suzuki Automobile India Ltd ....

Auto major Maruti Udyog Ltd MUL today announced that it will buy out Suzuki Motor Co8217;s stake in its subsidiary Maruti Suzuki Automobile India Ltd MSAIL to pave the way for the latter8217;s merger into MUL.

MSAIL was set up in 2004 to operate the company8217;s new car plant in Manesar. MUL holds 70 per cent stake in MSAIL while SMC Japan holds the remaining 30 per cent. MUL8217;s board of directors today approved the merger and a five-member committee comprising MUL Managing Director Jagdish Khattar, Pallavi Shroff, Amal Ganguly, R.C. Bhargava and H Nagao has been set up to oversee the financial aspects of the transaction.

The company cited eliminating inter-company transactions, enhancing value to MUL shareholders and reducing procedural hassles as the reasons for the merger. 8216;8216;The merger will retain all the benefits of the earlier arrangement and enable the management to focus on critical issues of business operation. The merger will be completed by September this year,8217;8217; said MUL Chairman S Nakanishi.

The new plant in Manesar will be operational by the end of 2006 with an overall investment of Rs 1,524 crore as announced earlier. The plant will have an initial capacity of 100,000 vehicles which would be scaled up to 250,000 units by 2008-09. 8220;By 2008-09 our production capacity will be to the tune of 850,000 vehicles per annum,8221; said Khattar.

The company informed that Rs 40 crore has been spent on MSAIL as paid-up capital and a debt of Rs 2500-3000 crore spent as cash flow which will become part of MUL, post merger. 8220;Some of the debt has been borrowed from a bank in Japan as syndicated loan. Post-merger, this debt will be part of MUL but details will be worked out by the committee,8221; said Nakanishi, adding that the real outflow will begin now.

Maruti clarified that the merger will not have any impact on the shareholding pattern of MUL. 8216;8216;This is just like an investment for us and we are using our cash reserves to buy out Suzuki8217;s stake,8217;8217; Khattar said.