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CoS to advise on Maruti sell-off in 15 days

Josy Joseph in New Delhi

The Cabinet Committee on Divestment on Saturday decided to constitute a Committee of Secretaries to "recommend optimal ways of divestment in Maruti, inter alia, after discussions with Suzuki Motor Company".

The Cabinet Committee also decided to sell the Baroda plant of the Indian Petrochemical Corporation Limited (IPCL) to the Indian Oil Corporation, while calling for fresh international bids for the other two plants. The decision to scrap the ongoing bidding process and start anew was taken because of fears expressed about Reliance becoming a monopoly in the sector.

The Cabinet committee also decided to go in for simultaneous divestment and financial restructuring in the ailing Paradeep Phosphates Ltd, which manufactures di-ammonium phosphate for phosphatic fertiliser.

Speaking to reporters after the committee meeting, Minister for Divestment Arun Shourie said that the government is yet to make its final decision on the exact form of divestment to be pursued in Maruti.

"Several options are available to the government. It can buy all shares from Suzuki, sell all to Suzuki, sell it all to a third party, sell the shares to Indian public, etc," he said.

As per a clause in the agreement between the government and Suzuki, if either partner wants to offload stake to a third party, it must obtain written permission from the other partner.

The Committee of Secretaries has been asked to submit its report in the next 15 days after holding talks with the Suzuki Corporation.

Under the agreement between government and Suzuki, "none of the shares held by Suzuki may be transferred (whether by sale, assignment, pledge, gift or otherwise) by Suzuki to any other party unless the written consent of the government has been obtained prior to the consummation of such transfer. No shares held by the government may be transferred by the government to any party unless written consent of the Suzuki has been obtained prior to the consummation of such transfer."

The Committee of Secretaries would be talking to representatives of Suzuki, which has already expressed its reluctance to go in for further investment in Maruti, to obtain their written consent in divesting the government holding.

"The requirement of consent cannot be used to extract unreasonable compensation," Shourie said when asked what the government would do if Suzuki does not give into the government request.

On the proposed divestment of IPCL, Shourie said that the Cabinet committee decided to sell the Baroda plant to IOC. The Baroda plant shares a common wall with the IOC complex there, and is in fact situated on IOC land. Also, the plant is meant to be an outlet for naphtha produced in the IOC's Gujarat plant at the adjacent plot.

"The government has in view of synergy of operations and interests of IOC and IPCL, now decided that the Vadodara Plant of IPCL, after proper valuation of assets, should be transferred to IOC," Shourie said.

The other two units of IPCL -- Maharashtra Gas Cracker Complex at Nagothane (Raigad district) and Gandhar Petrochemical Complex in Bharuch district, Gujarat -- will go in for fresh international bids, Shourie said.

Earlier, there were two bidders -- Reliance and the Chatterjee-Soros Group -- in the final round for the plants. However, due to fear that Reliance could end up as a petrochemical monopoly in the country, the government decided to scrap the on-going bidding process, Shourie said.

He said fresh international bids would be invited for the strategic sale of 25 per cent equity "as has been decided earlier in regard to IPCL as a whole".

Shourie said that he has already told Anil Ambani, managing director, Reliance Industries Limited, during a recent meeting that the government may be forced to scrap the bidding for IPCL plants, in which Reliance was a favourite.

"I told him that this is one of the options that the government will consider," he said.

"The government decision cannot be on one individual's pleasures," the minister asserted, while pointing out that IOC "may well bid for the other two plants too."

"The ministries of chemicals and fertilisers and petroleum and natural gas and the two organisations are expected to work out the modalities and complete the transfer of Vadodara unit. The process of divestment in the restructured IPCL would in the mean time continue," a statement issued by Shourie said.

On Paradeep Phsophates Ltd, the minister said that the government would "divest 74 per cent of the shareholding". The company is 100 per cent owned by the government, and in 1993 the cumulative loss of the company was Rs 1928.9 million, and the net worth became negative. The financial restructuring was sanctioned in 1994, which failed to improve the finances of the company.

The accumulated loss of the company as on March 31, 2000 is Rs 4018.9 million and "considering the deteriorating financial health of the company, the department of fertilisers has proposed a second financial restructuring," the minister said.

Shourie said the committee has asked the department of fertilisers to prepare a final report on financial restructuring and submit it to the Cabinet Committee on Finance. At the same time 74 per cent of the government holding in the company would be divested, he said.

The committee also reviewed the progress in implementation of the earlier decisions on divestment, including that of Air-India and Indian Airlines.

The Cabinet secretary has been asked to follow up on each decision, and "if there is any roadblock, it should be dealt with immediately bringing together all secretaries concerned," Shourie said.

When asked about Hindujas' reported bid for Air-India, Shourie said that the government has a "firm decision" that "we will not confirm or deny how many bidders are there and who all have bid."

However, when asked if Hindujas, who are chargesheeted in Bofors case, would be allowed to bid, Shourie said, "It is not a moral question, it is a question of law."

The minister, in an attempt to clear any doubt about bad play during the divestment process, said he has already discussed with the Comptroller and Auditor General of India to hold detailed scrutiny of every deal.

"After every single exercise (of divestment) is completed, every scrap of paper will be turned over to the CAG for preparation of a review and report. It will be sent to Parliament and nobody will come on the way of it," Shourie asserted.

"It will not only make us accountable, but we will also learn from our past mistakes," he said.

On the issue of Golden Share, the minister said the government is studying the issue, but no final decision has been taken. He said experiences in countries such as Britain are looked into, he said.

The Cabinet Committee on Divestment will meet next on December 23.

The committee, however, dropped plans to look into the privatisation of telecom firms Mahanagar Telephone Nigam Ltd. and Videsh Sanchar Nigam Ltd.

Original plans for the meeting to discuss the privatisation of telecom firms Mahanagar Telephone Nigam Ltd (MTNL) and Videsh Sanchar Nigam Ltd (VSNL) had been dropped.

Also not discussed during the meeting was the selection of a partner for National Aluminium Co.

Earlier, reports had said that the Cabinet Committee on Divestment would consider the sale of state holdings in the country's largest carmaker and a leading petrochemical firm.

The committee was expected to decide on launching negotiations with Japan's Suzuki Motors Corp, the government's equal partner in carmaker Maruti Udyog Limited.

The government had previously shied away from selling Maruti equity, but analysts warned that a further delay would harm the chance of getting a good price because the company's market share is declining.

It holds over 50 per cent of the market compared with over 70 per cent about two years ago.

Maruti started in the early 1980s and even though it is still the market leader, its dominance has slipped over the past three years with the entry of several international carmakers.

Newspapers said the telecommunications ministry had stalled a discussion on the two telecom firms at least until the winter session of Parliament -- which gets under way on Monday -- is over.

The government plans to reduce its 56 percent holdings in MTNL and VSNL to minority stakes, say analysts.

Analysts feel that lowering the government stake in the two firms is crucial for future growth and profitability. But concerns over the reaction of powerful trade unions in the sector has long delayed the decision.

"Maruti is a very attractive buy. A lot of global car companies would be interested. Inviting bids from them would ensure the government realised the price for its lucrative shares," a senior official at the Department of Divestment said earlier.

Analysts say that despite being dogged by falling sales and labour unrest, Maruti, formed in the early 1980s, is still a very attractive buy.

The Indian market had been dominated for over four decades by antiquated versions of British cars, and, since the 1980s, by Maruti-Suzuki, which is currently facing stiff competition from new foreign entrants.

With additional inputs from UNI and Agencies

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