LIC keeps safe distance from fund houses on Maruti Suzuki issue

India's largest insurer Life Insurance Corporation of India (LIC) is unlikely to side with fund houses in opposing Suzuki’s proposal to set up its Gujarat plant through a wholly-owned subsidiary. Sector sources said the insurer had merely sought clarifications and had not directly opposed the deal.

In January, Maruti Suzuki India Ltd (MSIL) announced the proposed new passenger car plant in the Mandal region of Gujarat would be built by a subsidiary of its parent Suzuki Motor Corporation of Japan. It said the new company, Suzuki Motor Gujarat Private Limited (SMGPL), to be registered by April, would exclusively contract, manufacture and sell vehicles to MSIL.

Several institutional investors opposed the plan, saying it would convert MSIL into a 'shell entity'. While some fund houses were looking to approach the Company Law Board, they needed LIC to join them. On December 31, 2013, LIC had a 6.9 per cent stake in MSIL.

SMC Chairman Osamu Suzuki will attend MSIL’s board meeting on Saturday. On the agenda is budgetary allocations for the next financial year, but sources said the meeting would also discuss the Gujarat plant issue.

"We have had several rounds of discussions with the carmaker and will take a final call on this proposal soon," said an LIC executive. He added LIC did not formally have any problems with the Suzuki plan, unlike other institutions and fund houses with stakes in Maruti Suzuki.

LIC was not averse to any new proposal, provided policyholders’ funds were protected, the executive said. This deal’s details were sought because it appeared to be a complex arrangement. The finance ministry had not given LIC any view about this issue, he added.

However, a finance ministry official told Business Standard, “LIC is opposed to it. It is not a transaction which is beneficial to LIC.” He, however, added it was an administrative issue and the ministry had not given any direction to LIC in this regard.

General Insurance Corporation of India (GIC), which has less than  one per cent in MSIL, was planning to side with LIC on the issue, sources said.

At least one independent director on the Maruti Suzuki board confirmed he had protested the financing arrangement for the Gujarat project. MSIL Chairman R C Bhargava declined to comment on board matters.

Seven mutual fund investors in MSIL, which had written to Bhargava about their concerns over the deal, were recently joined by nine other institutional investors, including five insurance companies. The second letter to the Maruti board in as many months said Suzuki would own the factory with production being earmarked for the local unit as this would shield it from the need to lock up its own funds. The shareholders said they failed to see how the deal, which would convert MSIL into a shell company over time, would benefit the Indian carmaker.