New Delhi/ Mumbai: Hero Group, led by billionaire Brijmohan Lall Munjal, plans to raise Rs3,700 crore in short-term debt to purchase the stake owned by Japan’s Honda Motor Co. in their motorcycle joint venture, says a report by debt rating company Crisil Ltd.
The Hero Group on 16 December agreed to buy the 26% stake owned by the Japanese company in Hero Honda Motors Ltd.
The group already owns about 26% stake in the motorcycle maker through a 17.3% stake held by Hero Investments Pvt. Ltd and an 8.67% interest held by Bahadur Chand Investments Pvt. Ltd.
A Hero Group spokesman declined to comment as he was out of town and had no access to email.
A short-term borrowing will help the Munjal family pay for the stake purchase till it can raise funds by selling shares to private equity (PE) investors.
“The private equity investment is likely to retire a substantial amount of the short-term debt,” said Pawan Agrawal, director at Crisil.
The short-term debt will be retired by Hero Investments by way of funds raised from private equity investors.
After the acquisition, Hero Investment’s stake in Hero Honda is expected to increase to 43.3%. Bahadur Chand will continue to hold 8.67% stake in Hero Honda.
Private equity firm Bain Capital and an investment arm of the Singapore government will buy a 30% stake in Hero Investments, giving the funds an indirect 13% stake in India’s largest two-wheeler company, The Economic Times reported on Friday.
The transaction has been signed and no investment bankers were involved in it, the newspaper said.
The private equity-assisted purchase of Honda’s stake in Hero Honda depends on the Munjal family being able to guarantee returns once the new entity comes into being, said three persons familiar with the discussions, who did not want to be identified.
It seems reasonable that the PE funds would want performance guarantees in terms of operational milestones, failing which they will try and force the Munjals to buy these shares back or readjust the value of their purchase through some sort of a top-up, said one of the three persons.
Honda, the world’s biggest motorcycle maker, decided to exit the Indian joint venture to focus on a fully-owned unit that it set up in the country in 2001.
Hero Honda’s shares rose about 0.7% to Rs1,500.35 at the close of trading on the Bombay Stock Exchange on Friday.
Honda’s 26% stake in the 26-year-old joint venture is worth about Rs7,789 crore at the company’s current market capital of Rs29,960 crore.