Motherson Sumi Systems Ltd (MSSL) plans to demerge its domestic wiring harness business into a newly formed legal entity with mirror shareholding, which shall be listed, the company said in a stock exchange filing on Thursday. It said that MSSL’s board of directors has granted in-principle approval for reorganization of business within the group.
“The intent of the said reorganization proposal is to meet long standing request from the Sumitomo Wiring Systems, Japan (SWS) to keep their participation focused to domestic wiring harness business in India,” the company said in its official statement.
For the joint venture partner SWS, domestic wiring harness business is the core area of interest in the company.
MSSL’s shareholding comprises of 61.73% stake of the promoter and the promoter group and remaining 38.27% by the public. That includes SWS’ 25.1% stake along with 33.43% stake of Samvardhana Motherson International Ltd (SAMIL) and 2.9% by Vivek Chand Sehgal (chairman) and family. SAMIL is also the investment vehicle of the founding family.
MSSL also said that the board has approved the proposal to consolidate complete shareholding in Samvardhana Motherson Automotive Systems Group B.V. (SMRP BV). MSSL and SAMIL currently hold 51% and 49% respectively in SMRP. Under the new proposal, SAMIL’s 49% stake in SMRP would be merged into MSSL, subject to SAMIL’s board and the shareholders’ approval.
“This will enable shareholders of the Company to participate in 100% of value of SMRP. This will meet the expectations of the public shareholders for MSSL to consolidate and simplify the structure,” MSSL said in the statement.
The company said that the proposed reorganization, once implemented, would enable both the companies to pursue focused areas of growth.
MSSL’s board has constituted a subcommittee of directors, who would oversee the process of reorganization and report within 90-120 days.
“The Board of MSSL, interalia, has empowered the said committee to evaluate and also to take all such necessary steps as may be required in this respect,” MSSL said in its BSE filing. The proposed reorganization shall also be subject to requisite regulatory and corporate approvals under the provisions of the Companies Act.
Moody’s Investor Service, in November 2019, had shifted its outlook on MSSL on the Baa3 issuer rating to negative from stable. The rationale behind this downgrade was weak performance of its greenfield operations and slowing global auto sales. MSSL had reported significant exposure and dependency on its European operations, where while Europe and Volkswagen Group contributed more than 40% and 28% of consolidated revenues in FY2019.
MSSL’s consolidated sales in FY2019 stood at ₹625.7 billion that included ₹551 billion from overseas businesses and ₹74 billion from domestic operations. Its net debt has also seen a significant rise over the past years, increasing from ₹32 billion in FY2015 to almost ₹80 billion in FY2019.
