Suzuki blames Maruti for not consulting on rights plan

Suzuki blames Maruti for not consulting on rights plan

FEB 14: Japan's Suzuki Motor Corp said on Wednesday it was not consulted about the Indian government's plan to sell off its 50 per cent stake in Maruti Udyog Ltd, India's dominant carmaker.

The only certain point of the plan is the government's desire to pump new money into the automaker to improve its competitiveness ahead of an initial IPO sometime in the future. "We need to strengthen Maruti by infusing more fund," Disinvestment Minister Arun Shourie told reporters at a press conference following the plan's approval.

He said the government will dispose of its stake through a two-phase process beginning with a rights issue of possibly in September. The government will not invest any more money in Maruti by buying new shares itself. Instead, the government's allotment of newly issued shares will be sold to Indian financial institutions and mutual funds, which will later offload the shares either to Suzuki or through the market.

"This will hand over effective management control to Suzuki...(and) with Suzuki firmly in control, Maruti's value is expected to go up over time." Shourie said the cabinet committee on disinvestment had considered five options for disposing of the government's stake in Maruti, including selling the entire holding to another foreign automaker, making it a strategic partner. The plan adopted was the most beneficial to Maruti as it would give it much-needed funds and also keep Suzuki happy, Shourie said.

INJECT NEW FUNDS:

The issue will inject new funds into the ailing car maker hit by falling sales, a bruising price cut made to hold onto market share, and labour disputes earlier this financial year. In the nine months through December, its sales shrunk 19.7 per cent from a year earlier to 241,322 vehicles, pushing the company into the red.

In the first seven months of the current business year to March, Maruti lost Rs 1.28 billion ($27.5 million). In the previous year to March, Maruti posted a net profit of Rs 3.3 billion on sales of Rs 96.7 billion. Shourie said the timing of the share sale to the public in the second phase would depend a great deal on the fortunes of the car market itself.

UNUSUAL YEAR FOR CAR INDUSTRY:

This year has been an unusual one for the small car segment which Maruti dominates. Sales dropped as stricker prices rose, reflecting higher local taxes and the introduction of technologies meant to reduce exhaust emissions and improve the air quality in India's sweltering, teeming cities.

The sales decline is also a bit of a statistical aberration. Last year sales were unusually good, with new car sales surging 55.9 per cent, making some slowdown inevitable this year. For Maruti, though, the decline in demand has been aggravated by new competition from the Indian units of Hyundai, Daewoo, Ford, Honda and Telco, a domestic vehicle maker, which have recently entered the market under India's spasmodic approach to liberalising its economy.

Maruti has responded to the competition by launching four new models in the past 18 months. It aims to launch one new model a year, an ambitious goal which would be make easier with funding received from the proposed rights issue.