Maruti matters

Maruti matters

An early pullout of the government from the running of the Maruti Udyog Limited (MUL) is ruled out by the complicated disinvestment process spelt out by the Cabinet Committee on Disinvestment on Tuesday. It is an open question how much time the government and Suzuki Motor Corporation (SMC) will take to sort out the exact modalities of the disinvestment and before the government fully dissociates itself from the running of the automobile giant. By opting for a three-stage process of disinvestment, rather than an outright shedding of its existing 50 per cent stake, the government has adopted an extremely cautious approach. The cabinet committee has justified it on the ground that the peculiarities of the joint venture agreement that binds the two partners warrant such an approach. However, the success of the whole process depends on many `if's and `but's. First, the market position of MUL has to be strengthened to fetch a good price for the government's shares. Financial experts have pointed out that the stageis passed when the best returns could be obtained on the government's stake in MUL. But now that the waiting period for MUL vehicles is becoming longer and longer even as the products of its competitors are available off the shelf, the MUL management has some reason to be hopeful about improving its market position.

The government's calculation appears to be that by going in for a rights issue and the resultant infusion of additional funds, MUL will be able to fortify its position. But there is no certainty about this. Share markets are guided by a host of other factors, including the performance of competitive brands and what share of the market MUL is able to command. At the same time, the government does not have resources to invest in technology upgrades for MUL's range of vehicles. So it intends to ask its milch cows -- financial institutions like the Industrial Development Bank of India -- to pick up the government's share, i.e., 50 per cent of the rights issue. The quantum of the issue and the premium on it will be decided in consultation with SMC and on the basis of evaluations by three international brokers. In the second stage, the FIs will be free to sell their holdings in the market. Are the FIs going to be allowed to make independent decisions based on their own interests and readings of the automobilemarket? Or is this going to be another attempt to rob Peter to pay Paul? Will the public be able to buy the shares and if so how will SMC prevent its rivals from acquiring them? And what will be the government's net additional gain in all this?

The joint venture agreement makes it obligatory for either party to obtain the written consent of the other before it sells its equity. At this stage SMC's mind is opaque. And what about the third stage when the government sells its present holding? If the public is also able to buy that stock, it again raises the spectre of MUL's rivals cornering a share. All this means a whole lot of issues still have to be addressed before disinvestment becomes a reality. If the government is serious about this three-step disinvestment plan, let it take the first logical step and get SMC's cooperation.