Individual investors cannot pick up more than 5 per cent in the initial public offering of Maruti Udyog owing to a clause in the joint venture agreement between the government and Suzuki Motor Corporation.

The stipulates that the government cannot offload more than a 5 per cent stake in the Indian market to any person.

However, institutional investors such as financial institutions, multilateral and bilateral development financial institutions, scheduled commercial banks, foreign institutional investors, mutual funds, foreign venture capital investors and venture capital funds registered with the Securities and Exchange Board of India can hold up to a 10 per cent stake.

The draft red herring prospectus filed with Sebi says, "The revised joint venture agreement provides that the government of India is entitled to divest its equity shares in the Indian market subject to the restriction that no person shall hold more than 5 per cent of the total paid-up equity shares..."

No reason has, however, been given in the prospectus for this clause.

Sources associated with the divestment process of the company said, "This clause effectively rules out individuals from picking up a 5 per cent stake in the IPO."

At present, Suzuki holds a 54.2 per cent stake in Maruti, while the remaining 45.8 per cent is held by the Union government, according to the offer document.

The government has decided to offload a 25 per cent stake in the company comprising 7.22 crore shares through the book- building route. The entire IPO has been underwritten by Suzuki at Rs 2,300 per share.

A maximum of 60 per cent of the issue will be reserved for institutions, while 25 per cent will be earmarked for retail bidders. The remaining 15 per cent of the issue will be picked up by wholesale investors.

The issue is being lead managed by Kotak Mahindra Capital Company and co-lead managed by ICICI Securities, JM Morgan Stanley and HSBC Securities & Capital Markets India.

Although Suzuki does not face any takeover threat as it already holds a 54.2 per cent stake in Maruti Udyog, managements view a stake of 5 per cent held by a single investor with caution.

Sebi too has made it mandatory for any individual picking up a 5 per cent stake to inform the company concerned. The company, in turn, has to inform the stock exchanges.

No entry

• Institutional investors can hold up to 10 per cent stake;
• Clause effectively rules out individuals from the initial public offering;
• A maximum of 60 per cent of issue will be reserved for institutions, 25 per cent for retail bidders and 15 per cent for wholesale investors.