Bain, GIC to acquire part of Honda stake in Hero

Private equity firm Bain Capital LLC and Government of Singapore Investment Corporation (GIC), a government-owned sovereign fund, are close to picking up part of Honda's 26 per cent equity stake in the world's largest two-wheeler manufacturer Hero Honda.

The two funds have left behind many other contenders, including PE funds like KKR, Carlyle, Warburg Pincus and TPG, among others, say sources. They also say the deal is being negotiated at a price of around Rs 1,500 to Rs 1,600 a share.

A Bain Capital spokesperson said: "As a policy, we do not confirm or deny speculations on deals." Hero Honda executives could not be contacted. The deal is expected to be completed within a few days.

Terminating the 26-year old joint venture with Honda Motor Corporation, the Munjals' promoted Hero Group had, in December last year, announced it would buy Honda's 26 per cent stake in Hero Honda for an undisclosed amount.

The Munjals also own 26 per cent share in the company. According to merchant bankers, the Honda stake was valued at around $2 billion, but the deal was signed by the Munjals at an undisclosed discount over the market price.

Hero needed to raise the funds for buying Honda's 26 per cent. The BAIN/GIC deal is part of the latter arrangement. The Hero Group may, at a later stage, look to buy the stake back from BAIN/GIC.

Hero Honda's share prices have been falling from Rs 2,020, a monthly high in January, to close at Rs 1,630.50 at the Bombay Stock Exchange on Monday. The share fell by over 1.6 per cent at close over last Friday.

The two parted ways after the Japanese automaker decided to concentrate in India through its fully-owned subsidiary Honda Motorcycle & Scooter India Ltd. The company, set up in 1999, essentially to make scooters, also introduced motorbikes a few years ago. However, it has been keeping away from the large 100-cc segment, in which Hero Honda reigns supreme.

A new definitive licensing agreement was signed by the two partners on January 24, which pertains to both existing and new products that the company will offer in the domestic market, once HMC exits the joint venture. Under the new arrangement, Hero Honda would continue to pay royalty to Honda at the current levels. The company is likely to pay2.75-2.85 per cent of net sales as royalty to HMC in the current financial year. The royalty payments for the group would go down beyond 2014, with royalty on existing products coming to an end at that time.

After the agreement, the Hero Group is also looking at initiating work to develop its own research and development capabilities. Ravi Sud, chief financial officer, Hero Honda had earlier said, "We would focus on building our R&D besides Honda would provide us with some new models. If the need arises we can also scout for partners globally to source technology."

The company would start work to put in place a distribution network to export products overseas in the coming months.

Anil Dua, senior vice-president (marketing and sales), Hero Honda, had said, "We have so far been a national player with limited global presence. We will now look at rapidly tapping opportunities worldwide. In our existing exports' market we will use the joint brand during the transition period for our products. In new geographies, we will project our own brand."

The company is looking at exploring markets in South Africa, South Asia, Latin America and West for exporting products.