Japanese auto company, Suzuki Motor Corp is reportedly contemplating buying as much as 5% stake in Maruti Suzuki from open market. The plan, which has seen a lot of delays due to many counts, could result in an increase of 59% in Suzuki’s stake in Maruti.
This buyout is expected to be done over the year, according to sources in the industry of merchant banking. According to sources the deal is live right now, so a lot of details are not yet available. Suzuki intends to purchase around 5% shares of Maruti Suzuki from open market, without disturbing open offer. With talks beginning about three months prior to natural crisis in Japan, necessary approvals for the plan had already begun taking place. However, the purchase got delayed. The company now feels the moment is right, for getting back to their plans.
According to other industry sources, however, Suzuki will probably go to financial institutions for block deals. A stake of 21.09% in Maruti is held by a group of institutions including ICICI Prudential Life Insurance, Bajaj Allianz Life and Life Insurance Corporation.
A stake of 5% would be priced at under $400mn or about INR 1,658 crores, according to the share price of the company on the BSE last Tuesday. On Tuesday, stocks of the company closed at INR 1,147.55, a drop of 1.35%.
When asked about this development, the chairman of the company, R.C. Bhargava, said that he was not aware about this situation. If Suzuki plans to purchase shares directly from open market, they won’t be informed about it. They will only be notified of it during the following board meeting after the pattern of shareholding changes. This meeting will be held on July 26, according to schedule.
According to regulations by the SEBI, a promoter having a stake in the range of 55 to 75, can for an increase only once till 5%, which they can only be an open offer. This is called as creeping acquisition.
This strategy of increasing their share holding might be part of the company’s larger scheme. This could help the parent company to increase their stream of revenue from the profitable Indian company that has sold 1 out of 2 cars in India.
This news has been doing the rounds for quite a few months now. An increased share holding by Suzuki, would help to consolidate their balance sheet, seeing that most of the profits are obtained from the Indian company. Following the announcement to set up a big car facility in Gujarat, they may have bigger plans of turning India into a global centre for export of small cars, according to sources from a leading brokerage firm.
Another expert in the industry stated that Suzuki could also intend to de-list Maruti Suzuki in the future.