Suzuki to build plant for Maruti in Gujarat

Maruti Suzuki on Thursday won a vote to hand over contract for manufacturing of an upcoming mega factory in Gujarat to parent Suzuki with around 90 per cent of shareholders who voted approving the deal.

A majority of minority shareholders, however, abstained from the voting, some of whom had earlier protested against the transfer and called it an "unfair" transaction.

Company officials said, LIC (which holds nearly 6 per cent), index funds, passive funds, proxy advisory firm Institutional Investor Advisory Services, many retail investors and those holding participatory notes, abstained from voting.

Maruti Suzuki India Limited had sought approval of the minority shareholders, pursuant to the Companies Act, 2013 and the Listing Regulations, for a related party transaction with Suzuki Motor Gujarat Private Limited for entering into a contract manufacturing agreement for the production and sale of vehicles and a lease deed for leasing land for purposes of implementing the contract manufacturing agreement.

Under the agreement, Maruti will lease the nearly 1,000-acre land at Becharji, on the outskirts of Ahmedabad, to Suzuki, while a Suzuki's subsidiary in Gujarat will undertake contract manufacturing for Maruti, at an estimated cost of Rs18,500 crore. Funds would come from equity brought in by Suzuki as well as money set aside for plant depreciation.

Car production at the new facility will start from early 2017, giving Maruti Suzuki an additional capacity of 1.5 million cars a year, which will come up in phases.

Maruti Suzuki has a present capacity of 1.4 million cars at two plants in Haryana (Gurgaon and Manesar). With the commissioning of the Gujarat facility, Maruti Suzuki will have a capacity to produce a total of nearly 3 million cars

"I have been told that LIC does not vote if they feel that a proposal will not harm their interests," Maruti Suzuki chairman R C Bhargava said, adding that the company had held roadshows in the US, Singapore, Hong Kong, London, Mumbai and Chennai to convince shareholders for approving the deal.

As per the new company law for related-party transactions, nearly 50 per cent of the shareholders (it was 75 per cent earlier) had to approve the deal for Suzuki to gain control of the plant. However, with nearly 65 million of the 130 million shares abstaining from the voting, the deal was virtually sealed in the parent company's favour.

Shareholders owning 65 million shares participated in the voting, of which, around 90 per cent (or 59 million shares) approved the deal, while 10 per cent (or 6.75 million shares) rejected the deal.

Bhargava said the transaction is a "win-win situation" for both Maruti and Suzuki. "Our shareholders will gain from this deal as Maruti's huge cash reserves will be used for purposes such as research and development and strengthening of sales operations. Suzuki also gains from this deal as a more profitable Maruti means that it reaps in more profit from its 56 per cent holding in the company."

The company also intends to buy land for setting up dealerships and sales outlets, which would be leased out to retail partners.

On Thursday, shares of the company closed at Rs4,666, nearly three times the Rs1,563 closing price on 29 January 2014, when it made the first announcement of shifting the ownership of the plant to Suzuki.