Facing the wrath of its minority shareholders, India’s largest car maker Maruti Suzuki India Ltd’s (MSIL’s) forthcoming board meeting on Saturday is likely to be overshadowed by the opposition to the firm’s plan to allow parent company Suzuki to set up a subsidiary and develop its factory in Gujarat.
Resistance to the plan that was approved by the board at its last meeting on January 27 has been growing over the last fortnight with more and more minority shareholders reiterating that Suzuki’s interference would be detrimental to Maruti’s long-term prospects and damage shareholder value in the company.
Suzuki holds 56.21% in MSIL followed by foreign institutional investors (21.47%), domestic institutional investors (7.05%), LIC (6.93%) and others including retail investors (6.34%).
Suzuki would initially invest Rs 3,000 crore in Gujarat to build the factory with an initial capacity of 250,000 units per annum. It is expected to be operational by 2016 and would be ramped up to 1 million units per annum in future.
A week after a clutch of 16 mutual fund houses that collectively own 6% stake in the company wrote to the board reiterating their opposition to the plan, a separate letter was sent out to Securities and Exchange Board of India (Sebi) chairman UK Sinha on Thursday, seeking the regulator’s intervention in the matter. Shareholders are concerned that the deal would reduce Maruti into a shell company that merely markets cars.
"We have sought Sebi’s intervention, a formal letter has already been sent and we are waiting to hear from the regulator," a senior official at a life insurance company, who refused to be identified, told HT. "We are aware that Maruti will have a board meeting on Saturday but we are not keen to meet any of the members as they are not willing to bend and it seems pointless for us to have talks with them."
Maruti has so far ruled out any re-thinking. But Saturday’s meeting, which would also be attended by Suzuki chairman Osamu Suzuki, is expected to be stormy as its independent directors who have also been under attack in the last few weeks, may raise the issue.