Financial Daily from THE HINDU group of publications
Wednesday, Feb 13, 2002
Corporate - Rights Issues
Industry & Economy - Disinvestment
Govt, Suzuki discuss Maruti rights issue
NEW DELHI, Feb. 12
ANOTHER big-ticket disinvestment appears to be around the corner with the Union Government initiating on Tuesday talks with the representatives of Suzuki Motor Corporation (SMC) for part-offloading its holding in Maruti Udyog Ltd through a Rs 400-crore rights issue.
The rights issue would trim the Government's holding in the 50:50 joint venture car maker with SMC, thereby handing over majority control of the company to the Japanese partner.
Government sources said that top officials from Suzuki discussed the details of the rights issue with senior officials from the Ministries of Disinvestment, Heavy Industries & Public Enterprises.
"However, no final decision has been taken. The negotiations will continue. The Suzuki side seems to be serious about the Government's plan on the rights issue,'' the sources said.
The proposed rights offer will constitute the first stage of the Government's plan to exit from the car maker jointly owned with Suzuki. "The Government wants to complete the rights offering by March,'' the sources said. The Government is understood to have discussed with Suzuki officials the valuation reports on Maruti, submitted by three independent valuers for the purpose of fixing the price and premium of the rights offer.
According to plans, the Government will renounce its portion of the rights issue in favour of Suzuki, making the Japanese company the majority shareholder in Maruti from its present status of being a 50:50 owner.
In return, the Union Government would charge a renunciation premium and a control premium from Suzuki for renouncing its portion of the rights issue and for giving up majority control over the company. "The discussions also centred around the renunciation premium and the control premium to be charged from Suzuki during the proposed rights offering,'' the sources said.
The price of the rights offer is expected to be pegged to the average of the three valuations carried out by KPMG, Ernst & Young and S.B. Billimoria & Co. All the three valuations are understood to be almost identical, without any wide variations.
While the proceeds from the rights issue will be utilised for funding the modernisation and diversification needs of Maruti, the realisation from renunciation and control premiums would flow into the disinvestment proceeds of the Government.
Following the rights issue, the Government would approach the market for off-loading its residual stake in Maruti through an offer for sale or initial public offering with the aim of exiting completely from Maruti, the sources said.
The Union Government has hired Kotak Mahindra to act as global advisors for disinvesting its stake in Maruti.
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