|
|
            
|
COMMENTARY MUL Divestment: The Other Side The GoI's elaborate approach to divest some of its stake in MUL actually has some things going for it. By Suveen K. Sinha
This writer isn't trying to make a case for what is so patently an exercise in political tightrope walking, but, hey, there are a few things about the longish detour that make sense. First, the GoI finally seems set on a course of action ending months of will-it, won't-it (and how-will-it), speculation. Second, the rights issue will see the company raise between Rs 700 crore and Rs 800 crore without any significant change in its ownership structure. This is nothing short of manna from above for a company in a hurry to launch new models and expand manufacturing capacity. Third, MUL's no Balco. The company already has a large private investor, Suzuki Motor corporation (SMC), and by agreeing to the latter's request not to divest its stake to a competitor, the GoI is just ensuring MUL's future, and keeping a good thing going: it earns Rs 3,000 crore a year from Maruti in the form of dividend, excise, sales tax, and customs duty. Besides, Maruti's health has a bearing on the auto component industry. The collective-localisation efforts of other manufacturers will not be enough to support this industry sans-Maruti. Fourth, Maruti will finally exit the purview of the Union Cabinet. The finance ministry administers the FIs and a decision on what they should do with their 15 per cent holding (post the rights issue) will be far simpler to make than the current one. The institutions, given the autonomy they have displayed thus far, could well tell the ministry to lay off since they have paid the GoI the requisite renunciation premium (around Rs 3,900 per share) for giving up its rights. They will remain free to sell this stake to the public, Suzuki, or to a third party with Suzuki's consent. They'll likely make a profit as the company would have emerged stronger after the inflow of funds. Especially since MUL would have, by then, put behind the losses of Rs 150-200 crore that its current year's balance sheet will show, mainly due to high depreciation (See Maruti In A Midnight Alley, BT, February 6, 2001). Fifth, the rights issue will force SMC to pump in money into Maruti that is not capital expenditure. This is pure unadulterated FDI coming into a country that has regularly missed its FDI targets. That's a significant silver lining. |
|
Issue Contents Write to us Subscriptions Syndication INDIA TODAY | INDIA TODAY PLUS | COMPUTERS TODAY
| TEENS TODAY
© Living Media India Ltd |
 |
 |
I have
never seen anything more convoluted than this; it'll make any sane man
dizzy,'' reacts a Mumbai-based investment banker. The man's responding, of
course, to the rather elaborate formula the GoI has adopted to divest some
of its stake in the country's largest car maker, Maruti Udyog Ltd (MUL).
For the benefit of those readers who have spent the last month travelling
to Mars and back, here's a one-line recap: MUL will float a rights issue
(on 15 per cent of its equity); the GoI will renounce its rights in favour
of domestic Financial Institutions (FIs); and a few months later, both the
GoI and the FIs will sell their holdings through an IPO.