(Adds details on updated proposal, chairman quote, investor reaction)
MUMBAI, March 15 (Reuters) - Maruti Suzuki India said on Saturday it will seek minority shareholder approval for a plan to outsource production at a new factory to its largest shareholder, Suzuki Motor, after its leading investors opposed the move.
Suzuki Motor Corp, which owns 56 percent of Maruti, in January had announced plans to invest $488 million in a new plant in Gujarat state in northern India and then sell cars produced at the plant to Maruti, shelving an earlier plan that would have seen Maruti set up the factory itself.
But the move has been strongly opposed by leading institutional investors, in a rare case of shareholder activism in India. They have argued the transfer of manufacturing to Suzuki would mean the Japanese carmaker, rather than Maruti, would reap the benefits of rising domestic sales.
Maruti Suzuki, which accounts for almost 1 out of every 2 cars sold in India, also announced key changes regarding how the production plant would be funded and valued in case the deal is terminated, in a bid to further assuage shareholder concerns.
"There was a misunderstanding amongst investors and a lot of scepticism about what we were doing, so we have removed the major issues that were bothering investors," Maruti Chairman R.C. Bhargava told Reuters.
"We are now confident we will get minority shareholder approval."
Maruti Suzuki did not announce a timeframe for minority shareholder approval in a statement issued after a board meeting on Saturday.
Seeking shareholder approval will give institutional investors opposed to the plan more time to gather support.
Life Insurance Corporation of India is Maruti's largest public shareholder with a 6.93 percent stake. Foreign investors in Maruti Suzuki include HSBC Global Asset Management and Norway's sovereign wealth fund Norges Bank Investment Management.
"We were really hopeful of something like this. (We are) planning to have a call over the extended weekend to discuss the details (and) will decide after that on the next steps," said one of the fund managers, who had opposed the move.
Maruti Suzuki has faced strong opposition from institutional investors, with a group of 16 big fund managers and private insurers writing a letter on March 5 to the auto maker's management opposing the plan.
Maruti on Saturday also said the Gujarat plant would be transferred by Suzuki to Maruti at book value in case both sides agreed to terminate their contract manufacturing agreement, and not at fair value as proposed in January.
The Indian auto maker also said the entire capex for the Gujarat project would be funded by depreciation and equity brought in by Suzuki, a key change in how the cost of the cars produced would be valued that had been demanded by institutional investors. (Editing by Clarence Fernandez and Robert Birsel)