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Problems dog planned Maruti sell-off

The Indian government's plan to sell its 50 per cent stake in the country's largest carmaker, Maruti Udyog Ltd, is problem-ridden, despite intense interest from domestic and foreign firms.

"Maruti has everyone from General Motors down interested because it is a very attractive buy. But the purported sell-off is likely to be an uphill task," warned industry analyst Rajat Singh.

Japan's Suzuki Motor Corp and the Indian government are equal partners in Maruti, which controls 54.5 per cent of the Indian market -- beaten down from more than 80 per cent two years ago by growing competition.

"It is an open secret that both the current partners in Maruti disagree on nearly everything and any buyer must have Suzuki's consent which on the face of it looks tough," Singh said.

An agreement between the two lays down that the Japanese firm will have the first right of refusal in the event of any government sell-off.

Suzuki's approval of any other purchaser is binding on the government.

The Business Standard on Monday said the government had "cold-shouldered Suzuki" on the acceptability of US auto giant General Motors, which holds a 20 per cent stake in Suzuki.

"The government is veering around to the view that such a move would lead to complications with the "Asian car" which General Motors plan to launch," said the Business Standard.

The government feels that an auto firm that does not compete with Suzuki in the small car segment and can help Maruti with a mid-size sedan would be its most appropriate partner

Analysts also say New Delhi wants to go in for international competitive bidding because it feels this option gives them the best chance of maximising revenues, compared to a negotiated sale with a single car firm.

"But the bidding process can only be kicked off after Suzuki gives its approval to the sell-off decision," auto industry analyst Srinivas Krishnan said.

"General Motors has a weak presence in Asia and wants 20 per cent of their worldwide profits coming from the emerging Asian market. So they are likely to exert a lot of pressure through Suzuki to buy into Maruti," he added.

A government panel is currently exploring options for the Maruti sell-off and is expected to submit its recommendations by December 23.

Indian Divestment Minister Arun Shourie told Parliament earlier this month his ministry would ask Suzuki to give it a list of acceptable partners.

The buyer would be selected through a competitive bid, he said.

Meanwhile, Indian companies also want a crack at buying into Maruti.

Rahul Bajaj, chairman of Asia's largest two-wheeler manufacturer, Bajaj Auto Ltd, said he had informed the government of his interest in the carmaker.

"I am in the automobile business, and therefore interested in acquiring any automobile company which is up for sale in the country," Bajaj said.

A study by Hong Kong-based consultancy firm Roland Burgers estimated the land price of the sprawling Maruti factory at Gurgaon in Haryana at roughly Rs 6 billion.

However, it added that the land cost coupled with the standing power plant and compressed natural gas pipeline was valued at some Rs 20 billion.

Maruti has known cash reserves of Rs 10 billion and Roland Burgers puts the brand value of Maruti at over Rs 20 billion.

"But other firms say Maruti, which is a household name in India, has an additional new generation infotech brand value worth Rs 20 billion. The databank Maruti has of customers is priceless and can be leveraged in the Internet economy," Singh said.

New Delhi is currently processing share sell-offs in 24 out of 70 state-owned companies it has earmarked for privatisation as part of an exercise launched in 1997.

The government is hoping to generate revenues by selling the family silver, including shares in firms such as Air India, Indian Airlines and Indian Tourism Development Corp, which has a chain of 36 luxury hotels.

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