The Suzuki group has given the government an undertaking to hold a minimum 26 per cent stake in Maruti Udyog after the initial public offering, as long as the government has a put option or till the revised joint venture agreement is valid.

A put option gives the government the right, but not the obligation, to sell its stake.

According to Maruti's draft red herring prospectus filed with the Securities and Exchange Board of India, the government can exercise the put option anytime between 4 to 24 months after the Maruti shares are listed.

Further, the RJVA is valid till such time as the government continues to hold a 10 per cent stake.

The undertaking not to cut its stake below 26 per cent comes on the back of an agreement between the two sides that Suzuki cannot dilute its stake to below 51 per cent in Maruti without the government's consent till the validity of the agreement or as long as the put option is open.

The draft says, "Suzuki undertakes that so long as the Government of India has the right to exercise its put options under the RJVA or until termination of the RJVA, whichever is earlier, Suzuki shall hold, as registered and beneficial owner, not less than 26 per cent of the paid-up shares of the company."

Suzuki's commitment will give a huge comfort to the government as its shareholding after the initial float will dip to 20.8 per cent below the threshold level of 26 per cent.

Under the Companies Act, 1956, a 26 per cent stake enables the holder to block special resolutions and have a say in the management of the company.

Since the two sides have over a two decade-long relationship in Maruti Udyog and built the company together, the government would be keen on Suzuki having a minimum 26 per cent stake and not being reduced to a passive investor.

Suzuki at present holds a 54.2 per cent stake in Maruti Udyog with the balance 45.8 per cent held by the Union Government. The government is planning to offload  25 per cent through an IPO next month.

The offer price will be determined through the bookbuilding route. The issue is lead-managed by Kotak Mahindra Capital Company and co-lead managed by ICICI Securities, HSBC Capital Markets India and JM Morgan Stanley.

The deal

• Suzuki's commitment will give a huge comfort to the government, as its shareholding after the initial float will dip to 20.8 per cent below the threshold level of 26 per cent.
• Suzuki at present holds a 54.2 per cent stake in Maruti Udyog with the balance 45.8 per cent held by the Union Government.