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Ministry moots new route for Maruti selloff

BS Economy Bureau

The heavy industry ministry is seeking a new route for Maruti divestment by proposing to permit Suzuki Motor Company or its partner to infuse further capital and hike its stake in the auto major. The government's stake in the company would consequently come down.

Speaking to Business Standard, minister of state for heavy industries and public enterprises Vallabhbhai Kathiria said, "we are willing to reduce the government stake in Maruti by letting Suzuki or its partner invest in the company." While Suzuki holds 50 per cent equity in Maruti, the government holds about 49.5 per cent, the balance being held by the employees' trust.

He said that the launch of a new model called for an investment of Rs 4-5 billion.

"Any investment for new models or expansion will come only from Suzuki or its partner. The government will not invest in Maruti anymore," Kathiria said.

He added that his ministry was of the opinion that Suzuki might invest the money by itself or could even induct a partner. "The decision would be left entirely to the board," the minister said. Kathiria, however, said that the proposal had not been communicated to Suzuki.

When contacted, department of divestment sources said that they were not aware of the heavy industry ministry's proposal. They also said while this was discussed by the Cabinet committee on divestment, it was stuck on the issue of control premium which Suzuki would have to pay for gaining management control.

The sources added that if the heavy industry ministry wanted any change in the Maruti divestment process, it would have to move a fresh proposal to the CCD.

The original plan for Maruti divestment cleared by the CCD in February this year proposed a two-stage process. In the first stage, the financial institutions were to subscribe the government portion of the proposed 15 per cent rights issue by paying a renunciation premium. In the second leg, Maruti was to come out with an initial public offering, whereby, the government would further offload its stake.

The heavy industry ministry's new proposal essentially means that the first stage of the process will be bypassed. Sources also said that it would be difficult for FIs, already facing a resource crunch, to subscribe to the rights issue by paying a hefty premium.

Maruti divestment has not made much headway beyond the CCD clearance six months ago, as the government and Suzuki are yet to appoint the merchant bankers for valuation of the company. Even the financial institutions have not yet undertaken any fresh valuation of equity.

Besides, with Maruti unlikely to post net profits in the first half of the current fiscal, the heavy industry ministry decided to postpone the divestment to the next fiscal to realise a better value.

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