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India cuts stake in Maruti

by CAR magazine on 07/05/2002

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The French state recently reduced its stake in Renault to 25 per cent, and India looks set to be the next government to privatise its shareholding in its biggest car manufacturer, Maruti.

The Indian government expects to reduce its stake in Maruti Udyog, the country’s largest manufacturer, to 25 per cent, partly through an initial public offering later this year, the country’s “Disinvestment Minister” Arun Shourie said on Monday.

This move mirrors a move by the French government. France announced in October that the state was ready to cut its stake in Renault to 25 per cent, saying then that the timing depended on market conditions. The French government, which is Renault’s main shareholder, sold 23 million shares to institutional investors.

Now it appears that the Indian authorities, who hold 49,74 per cent of Maruti Udyog, and Japan’s Suzuki Motor, which has 50 per cent, have finalised an agreement to reduce the state’s stake.

India, which has repeatedly failed to meet its privatisation targets in the past, plans to raise R5,71 billion from the sale of assets in the current financial year, which ends in March 2003, reported on Tuesday.

Maruti has a 59 per cent share of the new car market in India. The government aims to reduce its stake in a two-step process, beginning with a R840 million rights issue, and followed by an initial public offering.

Shourie said initial public offerings would be considered shortly, as soon as the Indian cabinet approved the agreement for the first step, which would enable Suzuki Motor to increase its stake in the car venture to a majority holding.

Under the agreement, the Indian government would renounce its portion of the rights issue to Suzuki in return for a control premium.

“The agreement is 10 times better than the previous agreement of 1992. It will be good for Maruti, for the government, for Suzuki and for the privatisation process,” Shourie said.

Shourie said the Maruti agreement and the privatisation of IPCL, the country’s second-largest petrochemicals firm, are expected to be approved soon by the cabinet panel on privatisation, headed by Prime Minister Atal Behari Vajpayee.