Maruti assures investors on Gujarat project plans

Maruti Suzuki India Limited (MSIL) on Friday said benefits of developing its Gujarat project through a wholly-owned subsidiary of Japanese parent Suzuki Motor Corporation (SMC) were being conveyed to investors by an MSIL team, led by Chairman R C Bhargava and Managing Director K Ayukawa.

Kotak Mahindra Capital and Axis Capital will facilitate the process to woo minority shareholders.

"The investment bankers are required to identify investors in various parts of the world, arrange meetings with them and the logistical support. These are involved in talks with MSIL in finalising presentations and strategy for the discussions, but the final decisions are of MSIL," a spokesperson said.

In March, MSIL had revised key terms of the agreement with SMC for setting up of the Gujarat facility to address concerns raised by institutional investors. The company has since not received any concerns about the proposal. The changes to the agreement aimed at making the deal more tenable include the removal of markups on cars sold by Suzuki to Maruti. Also, the company had said it will seek minority shareholders' approval and execute the plan only after assent from three-fourths.

The company decided to rework the financing model for additional capacity expansion in Gujarat to address investor concerns. Bhargava had at the time said: "The entire capital expenditure for the Gujarat project will be funded by the depreciation and equity brought by SMC." According to a deal announced by MSIL on January 28, a 100 per cent subsidiary of SMC was to set up manufacturing facilities on land owned by Maruti. The proposed unit will make cars for the Indian carmaker according to its requirements.

Suzuki is to fund the initial capex of Rs 3,000 crore, while further expansion is to be funded through an "incremental capex cost", depreciation costs and fresh equity brought in by the parent company to the extent necessary. The incremental capex cost or mark-up, which will be over and above the cost of production of vehicles, is to be borne by Maruti Suzuki.

According to the revised agreement, MSIL will buy vehicles from the Gujarat plant only at manufacturing cost. The price at which MSIL will get cars from Suzuki will be lower than the cost of producing vehicles in Haryana, as there will be no mark-up. The price will also not include the cost of capital employed. Additionally, to assuage the concerns of institutional investors, which had accused MSIL of flouting good corporate governance norms by accepting a proposal that might affect minority shareholders' interests adversely, the company said it would seek approval from minority shareholders, three-fourths of whom would have to give their assent via postal ballot for the deal to go ahead. The company is not required under the law to seek minority shareholders' approval.