After seeing intervention from Securities and Exchange Board of India (Sebi), Maruti Suzuki India limited’s (MSIl) domestic institutional investors are now looking to garner the support of foreign institutional investors (FII) against the car maker’s plan to transfer Gujarat project to Japanese parent Suzuki Motor Corp. Besides, domestic institutional investors are mulling to move the Company law Board (ClB) on the deal.
Maruti Suzuki India is facing stiff resistance from private sector mutual funds and insurance companies, which own almost 7 per cent stake in the company, for its decision to allow Suzuki to make cars for the Indian car-maker at a proposed plant in Gujarat instead of manufacturing vehicles itself.
Separately, state-run life Insurance Corporation of India (lIC) which alone holds 6.93 per cent stake in the company, has sought clarifications from MSIl about the Gujarat project. The private institutions are also trying to rope in lIC to jointly oppose the company’s decision. Collectively, if lIC joins hand with the institutions, they hold almost 14 per cent stake in MSIl.
A final decision with regard to drumming up support of FIIs as well as moving the ClB will be taken only after the outcome of Maruti Suzuki’s board meeting on March 15 is known, according to sources. FIIs including HSBC, Credit Suisse and Norway’s government pension fund together hold 21.5 per cent stake in MSIl.
On Thursday, representatives of 16 institutional investors met Sebi officials at its headquarters in Mumbai and submitted a memorandum addressed to Chairman U K Sinha.
Sebi had already started looking into the issue and is currently studying the regulatory framework with regard to its possible line of action against the company and its promoters.
While a new set of Sebi norms, that come into effect on October 1, 2014, requires such transactions to be approved by public shareholders of a listed company, there is some ambiguity about the existing law.
Promoters and related shareholders would not be allowed to vote while seeking approval for such transactions. The new Companies Act, which comes into force on April 1, 2014, also requires related-party transactions, including those entered into with promoter entities, to be cleared by public shareholders. If the Maruti deal does not get completed by this month, it would be subject to the new norms.
Sebi is studying if Maruti’s Gujarat deal affects the interests of minority shareholders and whether it breaches provisions of existing corporate governance norms. In their letter to the Maruti board, which includes four independent directors, the institutional investors had said they were concerned that the decision in January to let Suzuki Motor Corporation implement the Gujarat project to expand production facilities through a 100 per cent subsidiary would convert Maruti into a shell company over time.