 "Investors await Maruti Suzuki voting outcome'")
Investors in Maruti Suzuki are keenly awaiting the outcome of the shareholder voting over the controversial Gujarat plant proposal that concludes on Tuesday. Experts, however, believe regulatory changes and the change in shareholding over the past two years could help a smooth passage of the proposal. The company management feels it has taken steps to address the earlier concerns and communicated these.
The controversy was partly because Suzuki Motor of Japan, the parent entity, was proposed to own and initially invest Rs 3,000 crore in the Gujarat unit, to be named Suzuki Motor Gujarat. And, all cars made here would be formally sold to Maruti at cost plus some profit, to be used in turn to fund the plant's expansion. This proposed partial conversion of Maruti to a trading unit and the use of its profits to fund expansion of a factory owned by the parent were some of the reasons for the opposition. In 2014, domestic institutional investors (DIIs), namely, mutual funds and insurance companies, led the opposition. Since then, shareholding of the largest DIIs has substantially reduced. Foreign investor, earlier on the fence, could now have the decisive vote.
As of September's disclosure, the largest DII shareholding is with Life Insurance Corporation of India, with 5.37 per cent stake. In December 2013, when the proposal was first made, it was at 6.93 per cent. The second largest DII is ICICI Prudential Life Insurance. Their holding at end-2013 was 1.74 per cent; now, this is 1.03 per cent.
Foreign institutional investor holding has risen slightly, from 21.47 per cent to 22.08 per cent. Also, the dilution of related party transaction norms is likely to act in the management's favour.
“We have (also) taken steps to address the concerns that had been raised by the minority shareholders,” said R C Bhargava, chairman.
"As the threshold to pass a resolution has substantially gone down, it does make it easier for Maruti to pass the proposal. In the current scenario, it would largely depend on how the FIIs will vote and how many of the minority shareholders take part. It would be too early to say that all the FIIs would vote for the proposal, based on the global report recommendations. Some of them are not fully convinced,” said Hetal Delal, operations head at IiAS, a proxy advisory firm.
In 2014, the requirement was to get 76 per cent of the minority shareholders to vote for. This was revised to 51 per cent, after dilution of the Companies Act of 2013 and the Securities and Exchange Board of India’s corporate governance norms. In the past month, five reports were published by domestic and global institutional advisory entities. Three favoured the proposal. One, IiAS, criticised it and said so in an open letter to shareholders. Another proxy advisory, SES had suggested certain changes.
“We had suggested changes based on feedback from institutional investors and these were incorporated by the management. This was a testament that the company was engaging with shareholders. These changes included — investment being made by parent company in pure equity, if both parties mutually agree to terminate the agreement, facilities of plant would be transferred to Maruti Suzuki India at book value and the board decided to seek minority shareholders’ approval,” said J N Gupta, founder, SES.
The company management told Business Standard it had incorporated all the changes.
“We believe shareholders may benefit from the proposed Gujarat project. Foremost, the costs for building a new production line will not be borne by the company but by its controlling shareholder,” said a Glass Lewis report.
Another entity, ISS, also felt the management had responded positively to the shareholder concerns. “The terms of the transaction have been revised in response to the concerns raised by shareholders following the initial announcement,” said it report.
