(Adds details on updated proposal, chairman quote, investor
By Himank Sharma and Subhadip Sircar
MUMBAI, March 15 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
Maruti Suzuki did not announce a timeframe for minority
shareholder approval in a statement issued after a board meeting
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
"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
(Editing by Clarence Fernandez and Robert Birsel)