Chennai, Dec 17 (IANS) Minority shareholders of Maruti Suzuki India Ltd.’s (MSIL) have cleared the company’s proposal to source cars to be made by sister company Suzuki Motor Gujarat Pvt. Ltd. (SMG), a wholly-owned subsidiary of Suzuki Motor Corporation, Japan.
According to MSIL, 89.75 percent of the minority shareholders voted in favour of the related party transaction and 10.25 percent voted against.
The voting on the ordinary resolution sought MSIL’s minority shareholders’ approval for: contract manufacturing agreement to set up the requisite manufacturing facilities in Gujarat; lease deed in relation of land; deed of assignment; and any other agreement or documentation needed.
The Indian car maker also sought the minority shareholder’s approval for recovery of all sums on arm’s length basis from SMG. Originally it was MSIL that proposed to invest in Gujarat.
Proxy advisory firms like InGovern had advised minority shareholders to vote against the proposal as there is no business logic for MSIL to opt for this arrangement.
The MSIL scrip closed at Rs.4,666 at the BSE as against the closing price of Rs.4,618.95 on Wednesday.
Taking the investors and others by surprise, Suzuki Motor Corporation decided to
take over MSIL’s project in Gujarat and invest in it directly.
The decision raised concerns amongst institutional shareholders.
According to the contract manufacturing agreement between the two uploaded on MSIL’s website, SMG, the price of vehicles will be determined on mutual consent on such a basis that the latter does not have any profits or losses at the end of any financial year.
In the event of SMG having either profits or losses at the end of the immediately preceding financial year, the operation of the aforementioned principle shall be dealt with in the following manner: If at the end of a financial year, SMG retains profits, as per the audited financial statements for such financial year, such profits as well as any interest earned thereon, shall be utilised by SMG for reducing the vehicle price for the immediately following financial year; and If at the end of a financial year, SMG retains losses, as per the audited financial statements for such financial year, the vehicle price for the immediately following
financial year shall be correspondingly increased to offset such losses.
Any non-operating income accrued to SMG, arising out of any surplus funds shall be solely utilised for the purposes of its capex.
According to the agreement, SMG shall reduce the vehicle cost to the extent of fiscal incentive received from the Gujarat government in the relevant year or, to the extent such incentive not being set off, in the subsequent year, and the same shall be adjusted for computation of the vehicle price.
The capital expenditure needs of the SMG would be met by the depreciation amount available with the subsidiary and by Suzuki Motor Corporation infusing fresh equity, to the extent necessary.
The Gujarat subsidiary would determine its capital expenditure needs jointly with
MSIL consistent with the production needs of the latter.
According to MSIL, the Gujarat based sister outfit SMG will have an ultimate capacity of 1,500,000 units involving an outlay of Rs.18,500 crore.