Maruti Investors Ratchet Up Pressure to Shelve Suzuki Deal
March 12, 2014 2:59 PM EST
A group of investors in Maruti Suzuki Ltd(MRTI.NS) ratcheted up pressure on India's top carmaker to abandon a plan for its Japanese parent to build a new plant to make cars for the Indian firm, saying it would hurt shareholders.
A worker cleans a Maruti Suzuki Swift Dzire car as he is being reflected on a car at the company's stock yard at Sanand in Gujarat on 30 October, 2012.
Suzuki Motor Co (7269.T), which owns 56 percent of Maruti, in January announced plans to invest $488 million on a new plant in India and shelved an earlier plan for Maruti to set up the factory itself.
A group of 16 big fund managers said in a letter to Maruti management, dated March 5 and seen by Reuters, that the plan would shift manufacturing activity away from the Indian company and turn it into a "shell company" of its parent.
"The decision of the MSIL board is ill-conceived in its entirety and results in outsourcing of the core manufacturing activity that is fundamental and critical for MSIL," the letter said, referring to Maruti Suzuki.
"This clearly is not in the best interest of MSIL and its shareholders and is in fact significantly detrimental to them," the investors said, in a rare case of shareholder activism in India.
A spokesman for Maruti confirmed the company had received the letter and said it was in talks with shareholders to convey the "intent and purpose" of the deal.
A smaller group of shareholders sent a previous letter last month, saying they were concerned that the contract for the plant in Gujarat state meant the Japanese carmaker, rather than Maruti, would reap the benefits of rising domestic sales.
Under the plan, Maruti will buy vehicles produced by Suzuki at the new plant and sell them in the open market. Maruti currently produces and sells its own cars.
Maruti will continue to produce cars at its existing factories in Manesar and Gurgaon in north India, which have a capacity of 1.5 million vehicles per year, but incremental production would be sourced from the Suzuki plant.