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Japan Acquires India's Largest Car Company
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Suzuki chairman Osamu Suzuki shaking hands with the Indian Disinvestment
Minister. |
By
IOL South Asia Correspondent
New
Delhi, May 31 (IslamOnline): Japan's automobile giant, Suzuki, has
acquired Maruti, India's largest car manufacturing company for a song.
Changing the ruling party's patronage of local products, a former
crusading journalist, Arun Shourie, now minister for disinvestments,
accepted a cheque of Rs 10000 million [US$ 204 million] as control
premium from Suzuki Motors boss Osamu Suzuki Thursday. Thereby the
public sector giant became a private venture with foreign control.
Until
the sale off, Maruti and Suzuki were partners, with the Indian
government having a majority stake. Joint venture of Maruti and Suzuki
began as a public sector enterprise in early 1980s under the then
prime minister Indira Gandhi, when she returned to power for the
second time.
The
Indian government formalized a "people's car" project of
small cars at an affordable price. The project was given to Indira
Gandhi's younger son Sanjay Gandhi. He failed to produce the car
despite the passage of many years and billions in government subsidies
and advance payments collected from car dealers around the country.
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Maruti Company emblem. |
To
save itself from constant embarrassment, the government took over the
project and entered a joint venture with Suzuki in which the
government had 74 percent. Thus the first people's car, Maruti 800,
rolled out in 1983 priced at rupees 40,000 [$816 at the current
conversion rates]. Maruti became a rage in India and sales soared to
200,000 units in 1999 and came down with the subsequent entry of other
local and foreign players. Its current price for the basic model is
over rupees 200,000 [$4100] which is beyond the reach of an ordinary
Indian family.
During
the recent disinvestment campaign, or privatization, unleashed by the
BJP-led National Democratic Alliance government, public sector
enterprises in India are on the auction table. Several public sector
giants have been sold off and many are waiting for suitable bidders.
While
taking control of Maruti, Suzuki chairman Osamu Suzuki said that the
decision to privatize Maruti could be reached only after a string of
tough and focused negotiations. According to the privatization plans,
the government approved the disinvestment in Maruti through a
two-stage process. The payment of control premium is considered to be
the first step in privatization. "The control premium is
considered on the acquirer's value to get the control. It was
strategically decided to agree on the control premium considering
Maruti's future value for us," said Suzuki.
Suzuki
currently holds 59 per cent market shares of Maruti. Earlier, Suzuki
subscribed to 1.2 million newly issued Maruti shares from the rupees
4000 million rights issue at rupees 3,280 per share. Through this
Suzuki increased its stake in Maruti to 54.2 per cent while the
government diluted its stake to 45.54 per cent from the earlier 49.7
per cent.
In
the second step to privatization, the government would offload a 20
per cent stake through an initial public offering (IPO) of shares
during the current fiscal year and will exit the venture entirely by
March 2004. "Suzuki Motors would actively participate when fresh
Maruti shares are offered through the IPO," Osamu Suzuki said.
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Maruti basic model, Maruti
800. |
As
soon as the control premium was paid, Suzuki got its act together. In
a change of hands Osamu Suzuki immediately effected major changes in
the board of directors of Maruti Udyog Ltd (MUL). Overseas market
director Shinzo Nakanishi is the new chairman and non-retiring
part-time director. Suzuki's India representative Kinji Saito is the
new marketing director. Isao Ozawa has been appointed as the new
finance director.
Jagdish
Khattar the chief executive of MUL has again been reappointed managing
director. The rehauled Maruti board would now be having eight Suzuki
representatives and two part-time Indian government representatives,
financial advisor KK Jaiswal and department of heavy industries joint
secretary Pradeep Kumar respectively. Suzuki Motor chairman and CEO
Osamu Suzuki would continue as a director on the board.
However,
signaling that rehauling is only a part of the process, Osamu Suzuki
made it clear that MUL has been developed by the Indian government,
management and employees with Suzuki's technical support. "Maruti
can survive only as an Indian company and under Indian management.
Although Khattar was a government nominee, we appreciated his
professional ability and asked him to continue," Suzuki added.
Regarding
MUL's future investment plans, Suzuki said that the company would be
investing rupees 2000-2500 million in a die-cast foundry for greater
localization of automobile components.
In
the recent past MUL introduced a string of models like Versa, Alto,
WagonR and Baleno, Suzuki said. Maruti would continue to launch one
new model every year and push both new and older car brands to further
strengthen its position in the market. "The new objective of the
partnership with the government should be to give an automobile to
every Indian family," Osamu Suzuki said. Suzuki is planning to
use India as a springboard to export certain models to world markets.
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