BackMaruti gears up for minority vote on Suzuki Gujarat plant
Chairman RC Bhargava says the car maker has started road shows for investors in Mumbai after it received a 'go-ahead' from its board
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New Delhi: Nearly two years after announcing plans to allow its parent Suzuki Motor Corp. to build a plant in Gujarat, the board of India’s largest car maker Maruti Suzuki India Ltd will meet on 27 October to decide the dates on which it will seek the approval of minority shareholders for the deal, said the Indian unit’s chairman R.C. Bhargava.
“We are good to go," Bhargava said in an interview on Friday. “We will come out with the dates in the board meeting scheduled at the end of the month."
Bhargava said the company has started road shows for investors in Mumbai after it received a “go-ahead" from its board, which was waiting for the central government to pass some necessary amendments to the 2013 Companies Act.
According to plan announced in January 2014, Maruti will buy cars from the Suzuki subsidiary—Suzuki Motor Gujarat. That raised the hackles of investors and proxy advisory companies— prompting the vote.
The chances of Maruti winning the shareholders’ nod are higher after Sebi relaxed requirements imposed on companies for related-party transactions to bring them in line with amendments made to the Companies Act that came into effect in 2014, said a Mumbai-based analyst with a brokerage firm who did not wish to be named.
So far, Sebi norms required a vote by two-thirds of minority shareholders on a special resolution before a related-party transaction could be passed. In September, this was reduced to 50%, on the lines of the Companies Act. The move has made it easier for listed firms to clear such deals.
“It is likely to be a cakewalk for them," the analyst said. “You can sense their urgency now."
In January 2016, it will be two years since Suzuki announced it would build the Gujarat plant on its own.
The process of seeking the vote got delayed as the Gujarat government had to redo all the paperwork for Suzuki Gujarat, which was earlier done in the name of Maruti Suzuki.
Suzuki had announced that it would initially invest ₹ 3,000 crore in a plant in Gujarat and sell the cars it produces there to Maruti Suzuki.
That marked a significant change from the earlier plan under which the latter would have built the plant itself. The announcement had raised concerns that Suzuki may sell the cars to Maruti at a higher price than it would have cost the latter to produce them.
Institutional shareholders such as Axis Mutual Fund, DSP BlackRock Mutual Fund, HDFC Mutual Fund, ICICI Prudential Mutual Fund, Reliance Mutual Fund, SBI Mutual Fund and UTI Mutual Fund opposed the plan.
In March 2014, Maruti, bowing to pressure from investors, independent directors and Sebi, agreed to seek minority shareholders’ approval for the contract manufacturing agreement.
Three months later, the firm clarified to BSE that it could earn about ₹ 10,500 crore, assuming a post-tax return of 8.5% per year during the initial 15-year period of the contract manufacturing agreement, from the total investment ( ₹ 18,500 crore) it would have otherwise had to make in the Gujarat plant. And in the event of termination of the agreement, the company added, the plant would be transferred to it at book value.
Bhargava said Maruti’s board has approved the contract manufacturing agreement with Suzuki for a period of 30 years. “The agreement between Suzuki Gujarat and Maruti Suzuki will be signed after getting the minority shareholders’ nod," said Bhargava.
The Gujarat plant is envisaged to have a total installed capacity of 750,000 units annually. It is expected to be operational by May 2017.
At present, Maruti Suzuki India’s two facilities at Gurgaon and Manesar in Haryana have total production capacity of 1.5 million units annually.
Under the new agreement, Suzuki Gujarat shall operate on a no-profit and no-loss principle, manufacture and sell the products to Maruti Suzuki. It will not directly supply or assign the products to any other third party in any manner.
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