India’s largest car maker Maruti Suzuki India Ltd’s (MSIL’s) recent move to secure an approval from minority shareholders on its Gujarat factory issue may take a hit with some of its investors likely to vote against the plan.
After facing pressure from domestic institutional investors, Maruti on Saturday decided to clarify some of the aspects of the deal and gave voting rights to minority shareholders. While that has convinced a large section of its investors, some continue to oppose the deal.
“The proposed structure creates uncertainties and provides scope for misalignment of interests. When the proposal is put to vote, we are likely to advise voting against the proposal,” said Shriram Subramanian, founder and managing director, InGovern Research Services.
Maruti needs at least 75% of its minority shareholders to approve the deal, which would see a Suzuki subsidiary invest and operate the Gujarat factory on behalf of Maruti and fund future expansions through depreciation benefits. Investors have argued against the need for Suzuki’s intervention when Maruti had enough cash to fund the factory.
“Maruti has enough liquidity to fund the entire capital expenditure in Gujarat and its excess liquidity will be better used if it is invested in operations,” said Institutional Investor Advisory Services in an e-mailed statement. “Maruti must invest in the Gujarat plant and not Suzuki.”
Majority of the investors, however, seem to be satisfied with the clarifications. The company’s stock grew 7.6% on Tuesday and 1.7% on Wednesday on the BSE.