Govt May Divest 25% Stake In Maruti Udyog

The government is discussing a proposal to divest half its holding in Maruti Udyog Ltd which amounts to 25 per cent of the companys total equity to the Indian public and financial institutions. The government is also considering the possibility of sending a team of top officials to Japan to hold talks with Suzuki Motor Co, to resolve the differences between the two joint venture partners.

Supporters of the proposal point out that divestment from Maruti would yield the government substantial cash and boost its drive to mobilise fresh funds. At the moment, both Suzuki and the government own 50 per cent equity each in the car company.

Allowing the public to acquire equity holdings in one of Indias most successful joint venture companies is also expected to help the government politically.

Further, such a move would send out positive signals to the Japanese government and investors. Japan has cut off aid and suspended fresh yen loans to India in response to its nuclear tests in Pokhran.

Finally, and perhaps most importantly, the move, if implemented, would help resolve the governments uneasy relationship with Suzuki, which has moved the International Court of Arbitration against the Indian governments appointment of RSSNL Bhaskarudu as MULs managing director. The arbitration proceedings are expected to begin next month.

The strained relations between the two partners could lead to serious problems for MUL, as it will need new products and models which have to be developed by Suzuki to take on the new challenge in the small car market from Daewoo, Hyundai and the Tata group.

The government and MUL had made numerous attempts earlier to study the implications of a divestment exercise. Under an earlier study carried out during R C Bhargavas tenure as managing director, it was estimated that the government would get Rs 5,000 crore-Rs 6,000 crore if it decided to divest its entire stake. The company had estimated that the government shares could be sold at a premium of Rs 800-Rs 1,000 per share. The companys total equity capital is around Rs 66 crore.

In fact, the government and some Maruti Udyog executives had initially considered taking the company public as a means of financing its Rs 1,500-crore expansion project. However, the proposal was turned down and it was decided to finance the project through internal accruals and debt. The company brass decided to raise Rs 600 crore through internal accruals and the balance Rs 900 crore through debt.