Now, proxy advisors may propose vote against Maruti’s Gujarat plan
20 March 2014 4:21 AM IST
Maruti Suzuki's problems with regard to its Gujarat project are far from over as some proxy shareholder advisory firms on Tuesday said they may recommend to investors to vote against the revised proposal as well. Faced with dissent from institutional investors, including private sector mutual funds and state-run LIC, the carmaker last week decided to seek minority shareholders' nod for a proposal under which its Japanese parent Suzuki Motor Corp would implement a Gujarat plant.
Officials at some of the 16 private institutional investors (including mutual funds and insurance companies) have welcomed the company's decision to seek approval from minority shareholders, although they are waiting for the fine-print of the revised proposal to finalise the next move. Certain changes would also be made to the original plan before it is put for vote by Maruti Suzuki India Ltd (MSIL).
Foreign institutional investors (who hold 21.5 per cent stake) would play a key role, as their stand is yet not clear. ‘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,’ InGovern Research Services Founder and MD Shriram Subramanian said. According to him, the proposed structure is gravely unjust to minority shareholders. ‘Suzuki should have infused funds into MSIL or increased their stake in MSIL through an open offer, with MSIL being their only investment platform in India,’ he noted.
Another proxy firm IiAS said Maruti's recent announcement doesn't change its fundamental objection to the deal. As per the proxy firm, the deal is unnecessary and needlessly adds to the complexity and ambiguity of the operating structure.
‘Maruti has enough liquidity to fund the entire capital expenditure at Gujarat, and its excess liquidity will be better used if it is invested in operations,’ IiAS said in an e-mailed statement. ‘Maruti's return on capital employed is around 15 per cent, while its investment yield is much lower at 7-8 per cent. Therefore, IiAS continues to maintain that Maruti must invest in the Gujarat plant and not Suzuki,’ it added.
As per the revised plan for Gujarat project, Suzuki Motor Corp, through its wholly-owned subsidiary, would make the investment through depreciation and the equity brought in by parent without 'mark-up' on cost of production. In case of termination of the contract manufacturing agreement between them, the facilities of the Gujarat subsidiary would be transferred to Maruti Suzuki India Ltd (MSIL) at book value and not at fair value as was envisaged before. However, another proxy firm SES has said it is now in favour of Maruti Suzuki's Gujarat proposal.
Maruti scrip up 7.6 per cent on plan to seek nod for Gujarat plant
Mumbai: Shares of Maruti Suzuki India Ltd rose 7.6 per cent on Tuesday after MSIL on Saturday decided to seek minority shareholders' approval for the controversial Gujarat plant, which parent Suzuki Motor Corp decided to take over. After surging 9.37 per cent to Rs 1,899.90 — a 52-week high — the car-maker's scrip closed at Rs 1,868.85, up 7.6 per cent on the BSE.
On the NSE, the stock settled at Rs 1,869.50, a gain of 7.54 per cent. Under pressure from institutional investors, Maruti Suzuki India on Saturday decided to seek minority shareholder approval after tweaking some of its earlier proposals for the Gujarat plant, which Suzuki Motor decided to take over.
Although investments at the Gujarat plant will be funded by Suzuki via a wholly owned subsidiary, they will now be done through depreciation and the equity brought in by the parent without a 'mark-up' on cost of production.
In case the contract manufacturing agreement between them is terminated, the facilities of the Gujarat subsidiary would be transferred to Maruti Suzuki India at book value and not at fair value as envisaged earlier. The decisions were taken at a board meeting on Saturday, which was attended by Suzuki Chairman Osamu Suzuki.
Fund houses, which have been opposing the proposal to allow Suzuki to make cars for Maruti in Gujarat, said the decisions taken by the board appeared to be in the interests of the company and investors.
Officials at some of the 16 private institutional investors (including mutual funds and insurance companies) have welcomed the company's decision to seek approval from minority shareholders, although they are waiting for the fine-print of the revised proposal to finalise the next move. Certain changes would also be made to the original plan before it is put for vote by Maruti Suzuki India Ltd (MSIL).
Foreign institutional investors (who hold 21.5 per cent stake) would play a key role, as their stand is yet not clear. ‘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,’ InGovern Research Services Founder and MD Shriram Subramanian said. According to him, the proposed structure is gravely unjust to minority shareholders. ‘Suzuki should have infused funds into MSIL or increased their stake in MSIL through an open offer, with MSIL being their only investment platform in India,’ he noted.
Another proxy firm IiAS said Maruti's recent announcement doesn't change its fundamental objection to the deal. As per the proxy firm, the deal is unnecessary and needlessly adds to the complexity and ambiguity of the operating structure.
‘Maruti has enough liquidity to fund the entire capital expenditure at Gujarat, and its excess liquidity will be better used if it is invested in operations,’ IiAS said in an e-mailed statement. ‘Maruti's return on capital employed is around 15 per cent, while its investment yield is much lower at 7-8 per cent. Therefore, IiAS continues to maintain that Maruti must invest in the Gujarat plant and not Suzuki,’ it added.
As per the revised plan for Gujarat project, Suzuki Motor Corp, through its wholly-owned subsidiary, would make the investment through depreciation and the equity brought in by parent without 'mark-up' on cost of production. In case of termination of the contract manufacturing agreement between them, the facilities of the Gujarat subsidiary would be transferred to Maruti Suzuki India Ltd (MSIL) at book value and not at fair value as was envisaged before. However, another proxy firm SES has said it is now in favour of Maruti Suzuki's Gujarat proposal.
Maruti scrip up 7.6 per cent on plan to seek nod for Gujarat plant
Mumbai: Shares of Maruti Suzuki India Ltd rose 7.6 per cent on Tuesday after MSIL on Saturday decided to seek minority shareholders' approval for the controversial Gujarat plant, which parent Suzuki Motor Corp decided to take over. After surging 9.37 per cent to Rs 1,899.90 — a 52-week high — the car-maker's scrip closed at Rs 1,868.85, up 7.6 per cent on the BSE.
On the NSE, the stock settled at Rs 1,869.50, a gain of 7.54 per cent. Under pressure from institutional investors, Maruti Suzuki India on Saturday decided to seek minority shareholder approval after tweaking some of its earlier proposals for the Gujarat plant, which Suzuki Motor decided to take over.
Although investments at the Gujarat plant will be funded by Suzuki via a wholly owned subsidiary, they will now be done through depreciation and the equity brought in by the parent without a 'mark-up' on cost of production.
In case the contract manufacturing agreement between them is terminated, the facilities of the Gujarat subsidiary would be transferred to Maruti Suzuki India at book value and not at fair value as envisaged earlier. The decisions were taken at a board meeting on Saturday, which was attended by Suzuki Chairman Osamu Suzuki.
Fund houses, which have been opposing the proposal to allow Suzuki to make cars for Maruti in Gujarat, said the decisions taken by the board appeared to be in the interests of the company and investors.
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