MUMBAI, Feb 24 (Reuters) - Large Indian investors are challenging a plan by Maruti Suzuki to source cars from an Indian plant to be built by its parent, Suzuki Motor Co , saying minority shareholders would be better off if Maruti made the cars itself.
In a relatively rare case of shareholder activism in India, the group of heavyweight fund managers holding just under 4 percent of Maruti Suzuki's stock urged the firm to think again in a Feb. 13 letter to its chairman, R.C. Bhargava.
He told Reuters the factory, slated for initial annual capacity of 100,000 by 2017 but potentially rising to 1.5 million, would go ahead as planned.
The shareholders said they were concerned that the contract for the plant in Gujurat state meant the Japanese carmaker rather than Maruti would reap the benefits of rising domestic sales, at a time when India is tipped to become the world's third largest auto market by 2020.
"We sincerely urge you to rethink the Gujarat facility decision as the same is clearly neither fair nor in interest of MSIL (Maruti Suzuki India Ltd) shareholders," said the letter, a copy of which was seen by Reuters.
Suzuki Motor, which owns 56 percent of Maruti, announced plans to invest $488 million on the plant on Jan. 28.
It said it would sell cars for the plant to Maruti, going back on an earlier plan that would have seen Maruti set up the factory itself.
Shares in Maruti, India's dominant carmaker, fell 8 percent on that day, although the stock recovered most of its losses the following day.
The letter was signed by HDFC Asset Management, Reliance Capital Asset Management, ICICI Prudential Asset Management, UTI Asset Management, DSP BlackRock Investment Managers, SBI Funds Management and Axis Asset Management, which together own 3.93 of Maruti's shares.
The letter was also sent to independent directors of the Indian company and to Suzuki, several sources with direct knowledge of the matter said.
Bhargava said the company has no intention of changing the plan. "We are clear that it's very much in the interest of all the parties to do this, including the shareholders," he said by phone.
Separately, state-owned Life Insurance Corporation of India (LIC), which is Maruti's largest public shareholder with a 6.93 percent stake, sought clarification from Maruti Suzuki, according to the carmaker. The insurer did not reply to a request for comment.
The objection by the group of investors was first reported on Monday by the Times of India.
In their letter, the group also said the royalty paid by Maruti to its Japanese parent was too high, a complaint that has been raised before by investors.
Maruti will continue to produce cars at its existing factories in Manesar and Gurgaon in north India that have a capacity of 1.5 million vehicles per year.
Shareholder activism is relatively rare in India, although recent regulatory and legal changes suggest that could change. India last year passed a new companies law aimed at giving more power to minority shareholders and improving transparency. (Editing by Tony Munroe, John Stonestreet)