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Maruti Suzuki India Ltd to get minority stakeholders' approval for proposed car factory of parent firm

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March 15
8:40 AM 2014

Amid the insistence of 16 investors representing mutual funds and insurance firms to reject the proposal of Suzuki Motor Corp to construct its own car plant in Gujarat state, Maruti Suzuki India Ltd said it will ask the approval of minority stakeholders regarding the project, Bloomberg reported.

In January, Maruti's parent firm Suzuki Motor said it would be constructing a JPY 50 billion or $492 million plant that would have a capacity to make 100,000 cars a year. Maruti would be the recipient of the factory's output, the production of which is slated to start in 2017. Bloomberg data revealed that Maruti is 56.21% owned by Suzuki Motor.

India's largest car manufacturer in terms of volume, Maruti said in a statement, "Even though not required by law, the board decided, as a measure of good corporate governance, to seek minority shareholders' approval."

The decision to get the approval of the minority stakeholders came after the 16 investors called the proposal a "blatantly wrong and value-eroding oppressive transaction." They made their objection clear in a letter dated March 5 which was sent to Maruti's Chairman RC Bhargava. However, the company said it was standing by the project, the report said.

According to the money managers that were not in favor of the project, "This clearly is not in the best interests of MSIL and its shareholders and is in fact significantly detrimental to them. We wish to remind you of your fiduciary duty and urge you to carry out the Gujarat project under the ownership of MSIL."

In the statement, Maruti said the Gujarat unit will be financed by depreciation and equity from Suzuki Motor and would operate on a "no-surplus-no-loss basis." In case both parties agree to end the manufacturing deal, Maruti Suzuki would get the Gujarat facilities at book value, the Bloomberg report said.

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