Experts to Maruti Suzuki India: De-list or give in to investors' pressure

Written by Sandeep Singh | New Delhi | Updated: Mar 15 2014, 18:30pm hrs
Maruti Suzuki IndiaMaruti Suzuki institutional investors have opposed the transfer of Gujarat car plant under a fully owned subsidiary of Suzuki Motor.
CAPITAL markets regulator Securities and Exchange Board of India (Sebi) has asked Maruti Suzuki India to give a point-by-point response to all the issues raised by institutional investors opposed to the transfer of the Gujarat car plant under a fully owned subsidiary of Suzuki Motor Corporation.

As Maruti Suzuki India (MSIL) faces immense pressure over this decision, market experts say one of the options before the company to wriggle out of this situation is to go for de-listing.

A source close to the development told The Indian Express that Sebi has taken up the issue in order to protect the interest of minority shareholders. While MSIL has expressed its wish to go and meet the regulator, Sebi has asked them to send a para-wise response to all the issues raised by the institutional investors, said the source who spoke on condition of anonymity.

While Sebi does not see any violation of rules by the company, there are concerns around the fairness of the decision when viewed from the perspective of minority shareholders.

Market experts feel that the other option before the company is to change its position on the Gujarat plant.

It is learnt that the top officials of the company have been seeking advice on the issue.

However, investment bankers and capital market and corporate governance experts say that the ideal move for the company would be to de-list MSIL. There is legally nothing wrong with what Suzuki is doing but it is wrong ethically and it is clearly violating the interests of the minority shareholders. If they want to go ahead with this then logically they should de-list MSIL, said the head of a leading investment bank on condition of anonymity. He, however, added that there is a high probability that Suzuki may roll back its decision.

I think the company should immediately plan a buy-out and do a de-listing by giving a good offer price to the minority shareholders, said Prithvi Haldea, chairman, Prime Database.

MSIL announced its decision on the Gujarat plant on January 27. The BSE Sensex has risen by 3.2 per cent since, but the shares of MSIL have instead slipped by 2 per cent.

A top official with one of the institutional investors said he is open to the decision. If we are offered a good price, we would sell our stake and exit, said the official.

There are also talks that the government that had raised its concern on such a move in 2004 when it was a shareholder, may also be considering to take the issue up and sources say that the government may do it through LIC and Sebi.

An individual who is aware if the development told that the issue is also being discussed in the finance ministry too and if LIC joins the group of institutional investors that would imply that the government is backing the investors move.

Legal experts on the other hand say that while Sebi has never exercised its powers in such a matter , since there are questions being raised on the fairness of the move, Sebi can issue directions to the company in public interest.

I believe Sebi does have the powers to issue directions in the public interest though there is no precedent of that, said Sandeep Parekh of FinSec Law Advisors.