BackMaruti board approves pact with Suzuki arm for Gujarat plant
Maruti is expected to go for the minority shareholders' voting soon on allowing Suzuki to own and invest in the Gujarat plant
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New Delhi: The country’s largest car maker Maruti Suzuki India’s board has approved a contract manufacturing agreement for a period of up to 30 years proposed to be signed with a unit of parent Suzuki Motor Corp. for the upcoming plant in Gujarat. The agreement is proposed to be signed between Maruti Suzuki India and Suzuki Motor Gujarat, a wholly-owned subsidiary of Suzuki Motor Corp., which will implement the Gujarat project, subject to regulatory and minority shareholder approvals.
“The board of directors of the company at its meeting held on 1 October 2015 has approved the contract manufacturing agreement and the lease deed proposed to be signed by the company with Suzuki Motor Gujarat (P) Ltd subject to this arrangement being approved by the minority shareholders of MSIL and regulatory approvals, if any," Maruti Suzuki India said in a BSE filing.
“The contract manufacturing agreement shall continue for a period of 15 years to be automatically extended for a further period of 15 years at the end of the initial period without any further action or documentation on the part of either party, unless terminated by the parties by mutual agreement", as per the new proposed agreement.
“After the expiry of an aggregate period of 30 years from the commencement date, Maruti Suzuki India and Suzuki Motor Gujarat may mutually discuss and agree to extend the period of this agreement," the contract agreement document said.
Maruti Suzuki India is expected to soon go for the much-delayed minority shareholders’ voting on allowing parent Suzuki to own and invest in the Gujarat plant although it has not fixed a time for the same.
Maruti Suzuki India had initially planned to set up a new plant in Gujarat, its third, to meet growing demand. However, In January last year, Suzuki announced that it would invest $488 million to build the Gujarat plant. Opposing the move, Maruti’s institutional investors approached capital markets regulator Sebi, seeking its intervention to safeguard the interests of minority shareholders.
Private sector mutual funds and insurance companies, which own almost 7% of the company, led the opposition.
Later, under pressure from institutional investors, Maruti decided to seek the approval of minority shareholders after tweaking some of the earlier proposals for the Gujarat plant, which Suzuki had decided to take over. The Gujarat plant is envisaged to have a total installed capacity of 7,50,000 units annually. It is expected to be operational by May 2017. At present, Maruti Suzuki India’s two facilities at Gurgaon and Manesar have a total production capacity of 1.5 million units annually.
Under the new agreement, Suzuki shall operate on a no-profit and no-loss principle, manufacture and sell the products to Maruti Suzuki India in consideration for the price of the products in accordance with the order from the latter. Moreover, Suzuki shall not directly supply or assign the products to any other third party in any manner.
If at the end of a fiscal year, Suzuki retains profits, such profits as well as any interest earned thereon shall be utilized by the company for reducing the consideration for the immediately following financial year, it said.
On the other hand, “if at the end of a financial year, Suzuki retains losses, as per the audited financial statements for such financial year, the consideration for the immediately following financial year shall be correspondingly increased to offset such losses", the contract manufacturing agreement document added.
On the payment of royalty, it said the use of intellectual property shall be done “in accordance with the terms of the contractual agreements between Suzuki and Maruti Suzuki India". PTI
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