Mumbai: Members of the Bajaj family, one of India’s wealthiest, are selling a part of their personal stakes in group companies to generate cash to pay for the preferential warrant issue of Bajaj Holdings and Investment Ltd, the listed holding company of its flagship firm Bajaj Auto Ltd.
The eventual objective is raise the promoters’ stake in Bajaj Holdings to around 50% from 30.69% now.
“We have to sell, because we need the money,” says Niraj Bajaj, chairman and managing director of Mukand Ltd, who manages the family’s portfolio of investments. The initial plan is to raise the holding by 5% this year and by a like amount in 2011 through the preferential warrant issue.
The family will raise it to 50% over an unspecified period of time, matching the stake in other group holding companies.
According to him, there is no change in the ownership patterns of the family’s investment firms, which still hold a sizeable stake in group firms.
The Bajaj group has four main firms—Bajaj Auto that makes motorcycles and three-wheelers; Bajaj Finserv Ltd that controls its financial services business; Bajaj Electricals Ltd, a consumer durables firm; and special steel maker Mukand.
“We need to sell some shares in group companies to apply for the preferential issue,” Bajaj said. “Not a single share will be sold to outsiders.”
The investment company is raising around Rs454 crore by selling 1.01 crore preferential warrants convertible at Rs449.58 a share.
On Thursday, Bajaj Holdings shares rose 0.4% to close at Rs589.3 on the Bombay Stock Exchange.
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Some investment experts are critical of the pricing of the offer. “Preferential allotment of shares is not about increasing stake, but about gaining a majority stake in Bajaj Holdings and Investments. This is why the promoters should pay a premium to own majority stake so that minority shareholders rights are not violated,” says Arun Kejriwal, Kejriwal Research and Investment Services Pvt. Ltd, a Mumbai-based advisory firm.
In 2007, Bajaj Holdings and Investment and Bajaj Finserv were carved out of Bajaj Auto, with the former holding a 30.69% in Bajaj Auto.
The two-stage Rs450 crore preferential offer will be completed by January 2011. The slew of transactions started late January and will continue for the next two weeks to enable the promoters to raise Rs180 crore to pay up the first tranche, due by 31 March, Bajaj told Mint on Wednesday in Mumbai.
The second tranche is due by January 2011.
Bajaj Holdings holds around 2% stake in ICICI Bank Ltd, India’s largest private sector bank, and 1.07% stake in another group company Bajaj Allianz Life Insurance Co. Ltd, a life insurance venture between Bajaj Finserv and Allianz of Germany.
The news of the share sale had fuelled speculation on yet another split in the Bajaj family—this time regarding the Shekhar Bajaj faction walking away with the ownership of Bajaj Electricals, the consumer durables firm that has turned around under his stewardship.
But Niraj Bajaj rubbished the speculation. “It signifies nothing.”
The Bajaj family had split in 2008, when Rahul Bajaj sought an amicable separation by hiving off the ownership of India’s second largest sugar maker Bajaj Hindusthan Ltd in favour of his brother Shishir Bajaj, while retaining the other group companies along with his cousins Shekhar, Madhur and Niraj. Rahul Bajaj and his three cousins have closed ranks since then.
Except for Bajaj Holdings, the family holds close to 50% in all other group companies with the maximum stake in Bajaj Electricals, around 66%.
The preferential offer is significant for the family as the investment company has liquid assets worth at least Rs15,000 crore, much of it by virtue of holding equity stakes in group companies.
The historical cost of acquisition is much lower than their current market value. For instance, the cost of acquiring 4.44 crore shares of Bajaj Auto was Rs85.14 crore while the current market value is around Rs8,032 crore with the stock trading at Rs1,800 a share.
Bajaj Holdings also owns a significant chunk of Bajaj Finserv, a group company that owns its two insurance joint ventures with German insurance firm Allianz. The market value of the holding is estimated at Rs1,695 crore.
Niraj Bajaj told Mint last year that stakes in holding companies were intertwined among the four family branches in such a manner that future generations may find it difficult to untie the knots that bind them as a joint family-run business group.
“We are one of the few conservative business houses that still function as a joint family,” the chairman and managing director of Mukand had said at the time.
Graphics by Yogesh Kumar/Mint