NEW DELHI: The Government has decided to divest eight per cent shareholding in Maruti Udyog Limited (MUL) and through the sale expects to raise about Rs. 1,000 crores cashing in on the stock market boom. The shares will be sold to public sector financial institutions including banks, reducing the government stake in the car market leader to 10.28 per cent.

Friday's decision comes soon after the Left parties took a strong stand against disinvestment in Bharat Heavy Electricals Limited (BHEL), forcing the United Progressive Alliance Government to back down. Unlike in BHEL, a "navaratna", the Government has only a residual stake of 18.28 per cent in MUL as the majority shareholding is now in the hands of the Japan-based Suzuki Motor Corporation. It went out of the Government's control after the National Democratic Alliance Government divested 27.5 per cent shareholding through an initial public offer (IPO) in 2003.

Defence Minister Pranab Mukherjee told newspersons after a meeting of the Cabinet Committee on Economic Affairs (CCEA) here that the eight per cent equity would be sold through competitive bidding with the market price as the benchmark. Unlocking the money from non-strategic investment would provide more resources for priority sectors.

Asked whether all allies, including the Left, supported the decision, he said Maruti of today was different from what it was in earlier times.

The CCEA also decided to appoint advisers to assist in the transaction. At the current market price of over Rs. 513 a share, the sale is expected to mobilise about Rs. 1,000 crores, though much will depend on the actual timing of the transaction.

The realisation will be much better than the sale of 27.5 per cent equity by the previous Government, thanks to the current bull run in the stock markets.

According to an official statement, the Government in May 2003 held 45.8 per cent of stake in MUL, comprising 13.23 crore shares of Rs. 5 each.

In June 2003, it sold 7.94 crore shares, constituting 27.5 per cent of equity shares, through an IPO. The sale was done as per the terms of the revised May 15, 2002 joint venture agreement between Suzuki and the Government. The Government mopped up Rs. 993 crores selling shares at Rs. 125 a share of the face value of Rs. 5. It now holds residual shares of 18.28 per cent of the total equity of MUL, comprising around 5.28 crore shares.

Official sources say the Government has decided to retain 10 per cent stake which will entitle it to have a representative on the board. But this right will be available only till July next. As for pricing, they say an empowered group of ministers will decide the reserve price and approve the final sale price.

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