New Delhi: The Hero Group and Honda will sign a separation deal this month to end their 26-year-old joint venture Hero Honda, under which Indian partner will buy out the 26% stake owned by its Japanese counterpart.
According to sources in the know of the development, the two partners have agreed that current royalty rate per model paid to Honda will remain unchanged. The royalty paid in 2009 -10 on an average was 2.3% to 3% of sales.
Moreover, Honda will continue to provide technology and models to the Hero Group for a transition period, the minimum for which is till 2014 as per their existing joint venture agreement.
“The deal is at the final stages and could be signed within this month,” a source said, however, adding the partners are still having last minute negotiations on the valuation.
The source said that interest of investors and all stakeholders of Hero Honda have been given top priority during the negotiations and it would not be compromised at any cost.
When contacted, a Hero Honda spokesperson declined to comment. On the other hand, Honda said it and the Indian partner “regularly hold discussions about the future of the joint venture. However, at this time, nothing is available to disclose.”
It is understood that the Hero Group is arranging funds on its own to finance the buyout of Honda’s stake.
The Hero group and Honda hold 26% each in Hero Honda, that started operations in 1984 to become the world’s largest two-wheeler maker today.
In 2004, the Hero group and Honda had extended their agreement for 10-year, under which the Japanese partner would continue to provide technology to the JV. It was to come up for renewal in 2014.
Of late the market had been rife with speculation that the partnership is headed for a break-up with the partners unhappy with the existing circumstances.
While the Hero group wants the curbs imposed on export and technological development under their JV agreement to be lifted, Honda had wanted more royalty payment from the Indian firm.
Moreover, Honda’s move to enter the Indian two-wheeler market through its 100% subsidiary Honda Motorcycle & Scooter India in 2000 had not gone down well with the Indian partner.
Hero Honda scrips were trading at Rs1,758.40 per share, down 1.62% from the previous close at the Bombay Stock Exchange.