Financial Daily from THE HINDU group of publications
Thursday, Apr 11, 2002
Mergers & Acquisitions
Corporate - Mergers & Acquisitions
Markets - Rights Issues
Industry & Economy - Disinvestment
Suzuki set to take control of Maruti with 56% stake -- Rights issue renunciation almost finalised
NEW DELHI, April 10
JAPAN'S Suzuki Motor Corporation (SMC) is set to take control of Maruti Udyog Ltd (MUL) with 56 per cent stake following a rights offering.
"For this, we have negotiated a control premium and renunciation premium with Suzuki which would be finalised by the Cabinet Committee on Disinvestment within the month," Government sources said.
After the proposed rights issue, the Government holding in Maruti would be reduced to 44 per cent, the sources said.
The proposed rights issue constitutes the first stage of the Government's plan to divest its holdings in Maruti, a 50-50 joint venture with Suzuki.
In the second stage, the Government will sell its residual equity in Maruti in the market through an offer for sale, thereby exiting completely from the joint venture carmaker.
During the rights issue, the Government will renounce its portion of the rights in favour of Suzuki, effectively making the Japanese company the largest shareholder in Maruti.
Suzuki is understood to have given its consent to subscribe to the entire portion of the Government's rights being renounced.
The sources said that the control and renunciation premiums negotiated by the two sides during talks spread over two months have taken into account the Rs 55 crore net profit posted by the company during 2001-2002 as against a net loss of Rs 269 crore clocked by the company in 2000-2001.
Maruti returned to profit in a year when the car market was flat and the overall economic sentiment remained depressed.
The company sold 3.4 lakh vehicles in the domestic market during 2001-2002, achieving a total revenue turnover of Rs 9,295.3 crore, re-affirming its status as the No. 1 carmaker in the country. The Government and Suzuki are also understood to have agreed upon the exact nature of control that Suzuki will have in Maruti by virtue of being the majority shareholder, which leaves no scope for any backseat driving by the Government. "Draft shareholders' agreement to this effect have already been exchanged between the two sides," the sources said.
While the proceeds from the proposed rights offering would be utilised by Maruti for financing its expansion and modernisation needs, the control and renunciation premium corpus would flow into the disinvestment proceeds of the Government.
The Government had to adopt the negotiated route for ceding control in Maruti as the original shareholders' agreement signed between the two sides bestowed the first right of refusal to Suzuki for buying the equity held by the Union Government whenever it is sold.
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