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July 30, 2001
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Money > Business Headlines > Report July 30, 2001 |
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Bajaj Auto bans equity investment till markets look upBS Correspondent Bajaj Auto has decided to stop investing in all equities with effect from July 1, following the sharp fall in the stock market and a substantial drop in the value of investments made by the company's treasury arm. The diminution in investments of Bajaj Auto in the current year is said to be to the tune of Rs 1.60 billion. The company has decided not to make any fresh investments in equity unless the stock market improves. The company's equity exposure is to the extent of 40 per cent (Rs 6.63 billion out of its total investments of around Rs 16 billion), including 5 per cent in group companies. The remaining investments are in fixed income securities. "From July 1 we have stopped buying all equities even though my colleagues say we are losing a good investment opportunity. We will be framing tighter guidelines on investments at our next board meeting which will adopt a more conservative investment policy," Rahul Bajaj, chairman and managing director, Bajaj Auto, told shareholders at the company's annual general meeting on Saturday. In ICICI alone, Bajaj Auto has invested Rs 2.79 billion with an average purchase price of around Rs 60 per share. The investment in ICICI's equity represents around 6 per cent of the financial institution's total share capital. "We are the largest private shareholder in ICICI and it is a strategic, long-term investment. I reserve the right to sell it any time, but I have no desire to own and control ICICI," Bajaj clarified. The chairman of ICICI is expected to make a presentation to the top bras of Bajaj Auto on August 6 on the future prospects of the financial institution. Bajaj Auto had also invested Rs 2 billion in Unit Trust of India and this was brought down to Rs 490 million in the fiscal ended March 2001. This was further reduced to Rs 280 million in the current year. The amount is invested in UTI under 54EA for income-tax benefits. Bajaj came in for criticism from shareholders for investing in equities of companies, particularly of financial institutions and the UTI, which they felt had no future. The shareholders also pointed out that Bajaj Auto has put most of its funds in investment towards equities and other fixed income securities rather than in manufacturing. The investment funds at the disposal of the company have come down substantially in the current year due to the buyback of equity shares at Rs 400 per share (valued at a total of Rs 7.283 billion in the last fiscal). The company also spent Rs 799 million towards VRS, which is expected to bring in wage bill savings to the tune of Rs 300 million per annum. Bajaj clarified that the buyback benefited the small shareholders who were holding 200 and less shares. Of the 18,000 shareholders who had offered their shares for buyback, as many as 13,000 were small. Even though there was an initial drop in the number of shareholders to 25,000 due to the buyback, this number has increased to 35,000, as many who had exited from the company at Rs 400 per share have reinvested at lower levels. Powered by YOU MAY ALSO WANT TO READ:
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