Maruti's Gujarat plant may face opposition

Mumbai: Maruti Suzuki may face stiff opposition from institutional investors in getting the resolution on the Gujarat plant approved as proxy advisory firms are likely to advise investors to vote against the proposal.

The carmaker has been holding road shows with institutional investors for getting support for the resolution that will be open for voting from November 16 to December 15.

 “There is no change in the structure of the transaction. So we maintain our stand that the proposal is against the interest of the minority shareholders, says Shriram Subhramanian InGovern Research Services, a proxy advisory firm.

The firm has already sent out its recommendation calling for a negative vote on the resolution. “The proposed structure creates uncertainties and provides scope for misalignment of interests. We advise voting against the proposal,” Subramanian said. According to him, the proposed structure is gravely unjust to minority shareholders. Maruti will have to get 51 per cent of its minority shareholders to vote in favour of the resolution for getting the related party transaction passed.

Minority shareholding in the company stands at 43.79 per cent. Of this, 36.51 per cent is held by institutional investors, which include domestic mutual funds, insurance companies and foreign institutional investors (FIIs).

Maruti had organised road shows with investors at various locations such as Mumbai, Singapore, Hong Kong and the UK.

Another proxy firm IiAS said that it doesn’t change its fundamental objection to the deal. “We continue to hold the view that the resolution is not in the interest of the minority shareholders,” said IiAS founder Amit Tandon.

As per the proxy firm, the deal is unnecessary and needlessly adds to the complexity and ambiguity of the operating structure.

The proposed unit in Gujarat had faced resistance from a section of shareholders who are against certain clauses related to the pricing of the cars to be manufactured in the plant being set up by Suzuki.

However, another proxy firm, Shareholder Empowerment Services, has said that it is now in favour of Maruti Suzuki’s Gujarat proposal. “We have been supportive of the deal,” J N Gupta of SES said.

The Gujarat plant was initially planned to be operationalised in May 2017 but the company may be able to advance it by a couple of months. Next year, the company’s manufacturing facilities at Gurgaon and Manesar will be more than fully utilised and it would therefore require additional capacity from Gujarat to meet the higher demand.

Initially, the Gujarat plant was proposed to be owned by Maruti Suzuki but the plan was changed later with its Japanese parent Suzuki Motor Corp announcing in January last year that it would invest $488 million to build the new plant.

Last year, under pressure from institutional investors, Maruti Suzuki had decided to seek minority shareholders’ approval after tweaking some of the earlier proposals for the controversial Gujarat plant, which it had initially planned to set up on its own.

The Gujarat plant is envisaged to have an installed capacity of 7.5 lakh units annually. Maruti Suzuki’s two units at Gurgaon and Manesar have a total production capacity of 1.5 million units annually.

Maruti Shares closed 0.50 per cent higher at Rs 4,649 on BSE on Monday.