Government banks on FIs to divest its Maruti stake
ENS ECONOMIC BUREAU

New Delhi, Feb 13: With the government unable to take a firm decision on how and to whom to sell its 50 per cent stake in auto giant Maruti Udyog Ltd, it resorted to the time-tested tactic of getting Financial Institutions (FIs) to bail it out. The Cabinet Committee on Disinvestment (CCD) today decided to offer a rights issue for an undisclosed amount, and the government’s shares in this would be picked up by Indian FIs such as IDBI and IFCI.

Thus for example if Maruti makes a rights issue of Rs 500 crore, the Indian FIs will pay Rs 250 crore for this. So will Suzuki. At the end of the exercise, Suzuki shareholding in Maruti will remain at 50, as will the governments combined with that of the FIs.

Briefing reporters today after a two-hour long meeting of the CCD, Disinvestment Minister Arun Shourie said the FIs would decide at a later date as to what to do with their shareholding. Since Suzuki will object to them selling this stake to any of its competitors it seems likely the FIs will sell it to the Indian public at a later date. In which case Suzuki gets full control of Maruti Udyog at a fairly low price.However, according to Shourie, by not divesting to the general public the government will give time to Maruti to significantly improve its performance in order to help enhance its valuation. The minister said the government was resorting to this mechanism in order to retain part-Indian ownership of the company. Shourie said while a third party sale would not be acceptable to Suzuki, he did not clarify whether Suzuki itself was interested in bringing in a strategic partner, in this case General Motors.

Today’s decision results from the stalemate between the two partners on the issue of disinvestment. While Suzuki does not wish to buy the government stake, it is equally determined that none of the auto majors (several of which are global competitors) should be allowed to bid for it either. In the proposed issue, while Suzuki will be allowed to subscribe its portion of the rights issue, the government will renounce its rights offer and instead offer it to FIs and banks. This is, however, subject to approval by Suzuki Motors.

A target date of September for the issue has been set for which advisors three independent international bankers will be appointed soon. For the present, the government plans to restart negotiations with Suzuki in a day or two to work out the modalities of the issue. It is not clear what Suzuki’s response will be to the proposed issue.

Both the government and Suzuki have about 66 lakh shares and from government’s side 0.2 per cent of the holding are with the employees of MUL. The two-stage disinvestment has been discussed with the FIs as well as local representatives of Suzuki before getting the Cabinet’s nod, Shourie said and added that Suzuki’s representative had apprehensions about rivals picking up stake in the company. Disinvestment Secretary P. Baijal would start the process of negotiations with Suzuki within a day or two.

The road ahead
* Government will renounce its rights offer, instead offer it to Indian Financial Institutions and banks subject to Suzuki’s approval
* Suzuki to subscribe its share of the rights issue
* Advisors consisting of three independent international bankers will be appointed for the issue likely to be held in September