Companies & Sectors
Maruti Suzuki to seek minority shareholders’ nod for Gujarat plant
Maruti Suzuki has now decided that the cost of capex would be funded by the Gujarat plant’s depreciation and only by further equity infusion by Suzuki itself and it would seek approval from minority shareholders for the deal
 
After a hue and cry from several investors, including minority shareholders and fund houses, Maruti Suzuki India Ltd (MSIL) has agreed to seek stakeholders nod for its Gujarat plant deal with parent Suzuki Motor Corp (SMC).
 
After the issue was discussed at the board meeting that was attended by SMC chairman Osamu Suzuki, the Indian carmaker decided that it would not just tweak the most contentious points -- of funding incremental capex of the Gujarat plant and transferring the plant to MSIL in case of the deal’s expiry – but also, seek approval of minority shareholders as a measure of good corporate governance.
 
After the board meeting in Delhi, RC Bhargava, chairman of MSIL, told reporters that "Even though not required by law, the board decided, as a measure of good corporate governance, to seek minority shareholders' approval as stipulated in Section 188 of the Companies Act 2013".
 
Earlier in January, acting on a proposal sent by SMC, the board of Maruti Suzuki had agreed to an arrangement according to which expansion and production of the company branded cars will be undertaken by a 100% subsidiary of SMC on plots of land the carmaker had purchased in Gujarat in 2011. The subsidiary will produce vehicles in accordance with requirements of MSIL and will be sold only to the carmaker. The price of the vehicles to MSIL would include cost of production by the 100% subsidiary and adequate cash to cover incremental capital expenditure requirements. The return on this investment for SMC would be realised only through the growth and expansion of MSIL’s business. The subsidiary will always remain a 100% subsidiary of SMC.
 
Investors felt that the expansion of Gujarat Suzuki plant to 1.5 million by FY2021 implies an incremental capex requirement of additional Rs12,000 crore (assuming 20% lower capex compared with the first phase on a per car basis).
 
"If the cash flows of the Gujarat plant have to fund the incremental capex (as mentioned in the MSIL release), this implies that the initial investment of Rs3,000 crore by Suzuki in phase I will be valued at Rs15,000 over the next six years (FY15-FY21) at cost itself. This implies an internal rate of return (IRR) of nearly 30%."
 
"Thus, while Suzuki is not taking cash or dividends, and the cash flows are being utilised to increase capacity, the IRR on Suzuki's phase I investment is very high and much higher than the cost of capital of both MSIL and Suzuki itself," the investors had said.
 
Investors of MSIL were also worried about fresh investment requirement of the Gujarat Suzuki plant. They said, "It needs to be noted that the capex of Rs15,000 crore for 1.5 million cars is only for assembly. Fresh investment may be needed in engine and transmission capacity once the surplus capacity in Maruti's existing facility in Haryana is exhausted, which can further potentially increase the IRR."
 
Several shareholders of MSIL, including minority stakeholders and fund houses said they were concerned that the contract for the plant in Gujarat meant the Japanese carmaker rather than Maruti would reap the benefits of rising domestic sales, at a time when India is tipped to become the world's third largest auto market by 2020. Minority shareholders hold 43.79% stake in Maruti Suzuki.
 
Seven fund houses, including ICICI Prudential MF, Reliance MF and UTI MF, which hold 3.93% stake in Maruti Suzuki were planning to approach market regulator Securities and Exchange Board of India (SEBI) after the car maker failed to address their concerns.
 
Similarly, Bengaluru-based InGovern Research Services also had advised shareholders of Maruti Suzuki, to vote against the country’s largest carmaker's proposal to enter into contractual arrangements for expansion with a 100% subsidiary of Suzuki, the dominant shareholder in the company.
 
"There is no compelling business logic for such an arrangement when MSIL has the necessary capital raising ability to make investments. It looks like the SMC subsidiary will enjoy the benefits of no business risk with assured vehicle offtake by MSIL and assured return on investments, while MSIL will bear the business risk of cyclical vehicle sales, competitive pressures, pricing and cost pressures. Inventory levels, car pricing and discounts, cost increases, dealer network management, post-sale servicing, brand management  would all be risks  that will continue to be  borne by MSIL, while the 100% SMC subsidiary enjoys an assured vehicular offtake at pre-determined prices," InGovern had said in its advisory.
 
Maruti Suzuki has now decided that the cost of capex would be funded by the plant’s depreciation and only by further equity infusion by Suzuki itself, Bhargava said.
 

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HSBC, Citigroup, Deutsche Bank among 12 sued by US FDIC over Libor manipulation
FDIC said the Libor manipulation by these 12 big lenders caused 'substantial losses' to 38 US banks, which were shut down due to insolvency during and after the 2008 financial crisis
 
The US Federal Deposit Insurance Corporation (FDIC) has sued HSBC, Citigroup, Deutsche Bank and 12 other global banks for manipulation of the Libor benchmark interest rate.
 
FDIC said the manipulation caused “substantial losses” to 38 US banks, which were shut down due to insolvency during and after the 2008 financial crisis.
 
The FDIC said the accused institutions cheated the closed banks in US dollar Libor-based swap and other agreements through the manipulation of the rate between 2007 and 2011.
 
Libor, or the London Interbank Offered Rate, is used as a reference for some $350 trillion worth of financial contracts worldwide, from corporate loans to financial swap contracts.
 
“The Panel Bank Defendants fraudulently and collusively suppressed USD Libor, and they did so to their advantage,” the suit said.
 
The banks named are, or were, participants in setting the daily Libor rate: Bank of America, Citigroup, and JPMorgan Chase of the United States, Germany’s Deutsche Bank and WestLB, Britain’s HSBC, Barclays and Lloyds banks, Japan’s Norinchukin Bank and Bank of Tokyo—Mitsubishi, Credit Suisse and UBS of Switzerland, Royal Bank of Scotland, Royal Bank of Canada, and Rabobank of the Netherlands.
 
Several of the banks have already paid substantial fines to regulators and justice authorities in the United States and Europe for participating in rate-fixing.
 
Also sued was the British Bankers’ Association, which at the time oversaw the daily fixing of Libor by the banks.
 
“BBA participated in the alleged scheme to protect the revenue stream it generated from selling Libor licenses and to appease the Panel Bank Defendants that were members of the BBA,” it said.
 
The FDIC said it was seeking full damages for losses incurred by the closed banks, punitive damages, and damages for violating US antitrust statutes.

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US issues arrest warrant against Devyani Khobragade
The new charges, which came a day after a US court dismissed an earlier indictment, accused Devyani Khobragade of visa fraud and making false statements about the visa application of her maid Sangeeta Richard
 
The US issued an arrest warrant against Devyani Khobragade after prosecutors re-indicted her on visa fraud charges and accused the Indian diplomat of 'illegally' underpaying and 'exploiting' her domestic maid.
 
In a letter to US District Judge William Pauley, Attorney for the Southern District of New York Preet Bharara informed that Khobragade is 'believed' to be in India and the court will be alerted if and when she is arrested.
 
"An arrest warrant was also issued today. The Government will alert the Court immediately upon the defendant's arrest so that an appearance before Your Honor may be scheduled. At present, the defendant is believed to be in India," Bharara said in the letter.
 
He said the indictment alleges that Khobragade made false statements to US authorities "to facilitate her exploitative employment of a household employee who was grossly underpaid and overworked."
 
Bharara said Khobragade is unavailable because her "whereabouts are known but (her) presence for trial cannot be obtained by due diligence or (she) resists appearing at or being returned for trial."
 
The new charges, which came a day after a US court dismissed an earlier indictment, accused her of visa fraud and making false statements about the visa application of her maid Sangeeta Richard.
 
The 21-page indictment, filed by the office of India-born Bharara, states that the diplomat "knowingly made" multiple false representations and presented false information to US authorities in order to obtain a visa for a personal domestic worker.
 

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