The country’s largest carmaker Maruti Suzuki India’s board has approved a contract manufacturing agreement for a period of up to 30 years proposed to be signed with an arm of parent Suzuki Motor Corp (SMC) for the upcoming plant in Gujarat.
The agreement is proposed to be signed between Maruti Suzuki India (MSIL) and Suzuki Motor Gujarat (SMG), a wholly-owned subsidiary of SMC, which will implement the Gujarat project, subject to regulatory and minority shareholder approvals.
“The board of directors of the company at its meeting held on October 1, 2015, has approved the contract manufacturing agreement and the lease deed proposed to be signed by the company with Suzuki Motor Gujarat (P) Ltd subject to this arrangement being approved by the minority shareholders of MSIL and regulatory approvals, if any,” MSIL said in a BSE filing.
“The contract manufacturing agreement shall continue for a period of 15 years to be automatically extended for a further period of 15 years at the end of the initial period without any further action or documentation on the part of either party, unless terminated by the parties by mutual agreement”, as per the new proposed agreement.
“After the expiry of an aggregate period of 30 years from the commencement date, MSIL and SMG may mutually discuss and agree to extend the period of this agreement,” the contract agreement document said.
MSIL is expected to soon go for the much-delayed minority shareholders’ voting on allowing parent Suzuki to own and invest in the Gujarat plant although it has not fixed a time for the same.
MSI had initially planned to set up a new plant in Gujarat, its third, to meet growing demand. However, In January last year, parent Suzuki Motor Corporation announced that it would invest USD 488 million to build the Gujarat plant.
Opposing the move, Maruti’s institutional investors approached capital markets regulator Sebi, seeking its intervention to safeguard the interests of minority shareholders. Private sector mutual funds and insurance companies, which own almost 7% of the company, led the opposition.
Later, under pressure from institutional investors,Maruti decided to seek the approval of minority shareholders after tweaking some of the earlier proposals for the Gujarat plant, which SMC had decided to take over.
The Gujarat plant is envisaged to have a total installed capacity of 7.5 lakh units annually. It is expected to be operational by May 2017. At present, MSIL’s two facilities at Gurgaon and Manesar have a total production capacity of 1.5 million units annually.