Maruti Suzuki deal: Institutional investors raise new concerns

Mar 12 2014, 11:06 IST
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Institutional investors oppose the move because it would transform MSIL into a distributor from a manufacturer. Reuters Institutional investors oppose the move because it would transform MSIL into a distributor from a manufacturer. Reuters
SummarySeven mutual fund investors in Maruti Suzuki India Ltd have now been joined by nine other institutional investors.

Raising fresh concerns over Maruti allowing parent Suzuki to undertake a Gujarat project on its own, institutional shareholders have asked the carmaker's board to quash this "oppressive transaction" to save the company from becoming a "shell" entity.

Seven mutual fund investors in Maruti Suzuki India Ltd (MSIL), who had earlier written to company Chairman R C Bhargava about their concerns over the deal, have now been joined by nine other institutional investors.

These include insurance companies holding MSIL shares and mutual funds. State-run LIC has separately sought clarification from the company over the deal. Institutional investors together hold almost 14 per cent in MSIL, while the promoters have a 56.21 per cent shareholding.

The institutional investors said they are concerned the decision of MSIL's board in January to let Suzuki Motor Corporation implement the Gujarat project to expand production facilities through a 100 per cent subsidiary would convert Maruti into a shell company over time.

"This clearly is not in the best interest of MSIL and its shareholders and is in fact significantly detrimental to them," they added in a letter to the company management.

The institutional investors said Maruti Suzuki board's decision is "ill-conceived" in its entirety and results in outsourcing of the core manufacturing activity that is fundamental and critical for the Indian car maker.

"Worse, such outsourcing is given to the wholly owned subsidiary of Suzuki through a related-party transaction on terms that are very unfavourable to Maruti Suzuki and its shareholders and blatantly favouring the future prospects and interests of Suzuki," the shareholders said in the letter.

The institutional investors include ICICI Prudential MF, Reliance MF, L&T MF, UTI MF, SBI Mutual Fund, SBI Life Insurance, Reliance Life Insurance and Religare Invesco.

An MSIL spokesperson said, "Our purpose is to strengthen Maruti's business and benefit all stakeholders, including minority shareholders...We are communicating with them regularly to convey this intent and purpose."

MSIL's board approved the proposal from Suzuki Motor to expand the production facilities in Gujarat through a unit "because it would result in substantial financial benefits to MSIL and its minority shareholders," according to a BSE filing on January 28.

Institutional investors oppose the move because it would transform MSIL into a distributor from a manufacturer.

The Securities & Exchange Board of India, the market regulator, is looking into the matter on a suo motu basis.

According to corporate governance norms that come into effect on

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