Maruti Udyog Ltd could see its reserves erode by 60 per cent if it had to settle all claims from various government departments and private parties.

MUL, as per a draft red herring prospectus filed with the Securities and Exchange Board of India, has stated that it faced claims of Rs 1,798.5 crore (Rs 17.98 billion) till date.

The passenger car major's reserves and surplus, as of December 2002, was Rs 2,951 crore (Rs 29.51 billion) and its turnover stood at Rs 6,621 crore (Rs 66.21 billion).

Bulk of the claims, not acknowledged as debt, were from departments such as sales tax, excise, customs, and income tax which tot up to Rs 1296.2 crore (Rs 12.96 billion).

This is followed by 14 different claims from the excise department aggregating Rs 415.5 crore (Rs 4.15 billion), among which the single largest is a Rs 200 crore (Rs 2 billion) claim pertaining to Modvat credit on capital goods filed in 2001 for 1996 to 2000.

MUL stated that it did not provide any reserve for the amount because the Finance Bill 2003 has proposed an amendment in excise rates with retrospective effect from 1996 and the company believes that if the amendment is passed, then the excise department is likely to drop the case.

The excise claim of Rs 64 crore (Rs 640 million) was for duty on freight and service charges, which is pending before the commissioner. MUL was issued a show cause from the department last year.

This is followed by another Rs 49 crore (Rs 490 million) claim by the department in January 2002, which is being contested in the court. Of the remaining 11 cases, MUL has made provisions for three cases, involving a claim of Rs 4 crore (Rs 40 million), and provisions made were for an equal amount.

Though the Finance Bill 2003 was passed by the Lok Sabha last week, the status of the amendment concerned is not known. Maruti officials too were unavailable for comments.

Meanwhile, MUL had initiated arbitration proceedings against one of its dealers. The dealer has, in turn, made a counter claim of Rs 74 crore (RS 740 million) against MUL. The sole arbitrator has passed an order asking the dealer to furnish a bank guarantee amounting to Rs 7.6 crore (Rs 76 million).

Further, there were 783 consumer cases pending before the National Consumer Disputes Redressal Commission, State Commission or District Forums involving MUL and its dealers. The total claim amount was Rs 22.5 crore (Rs 225 million).

Of these cases, 677 are registered with the District Consumer Disputes Redressal Forum, 83 with the State Consumer Dispute Redressal Commissions and 23 with the National Consumer Dispute Redressal Commission.

In addition, 45-odd money recovery suits are pending against MUL in various courts, involving a claim of Rs 17.31 crore (Rs 173 million). The company has stated that based on legal advice it had a strong defence against most claims and has, therefore, not made any reserves in its financial statements towards the potential liability.

...ropes in underwriters

Maruti Udyog Ltd as part of its programme to offload 25 per cent of its stake in the market has roped in Kotak Mahindra Capital Company Ltd, ICICI Securities Ltd, JM Morgan Stanley Pvt Ltd, HSBC Securities and Capital Markets (India) Pvt Ltd, Kotak

Securities Ltd and ICICI Brokerage Services Limited to act as underwriters to the issue.

KMCC will also act as the book running lead manager to the issue, while, ISL, JMMS, and HSCM will act as the co-book running lead managers.

The company has decided to offer for sale 72,243,300 equity shares of Rs 5 each for cash. It has also kept the option of enhancing the offer to the extent of up to 10 per cent of the offer that is up to 7,224,300 equity shares of Rs 5 each in case the selling shareholder decides to retain any over-subscription.

In such a case, the size of the offer may increase to 79,467,600 equity shares of Rs 5 each. The floor price of the issue is, however, yet to be decided.