Hero and Honda split crosses another hurdle

Hero and Honda are the biggest and the well known joint ventures in the Indian market, which has been delivering good quality of two wheelers in the Indian market. The Hero and the Honda were the successful joint ventures in the Indian automobile history. The both company has now split. The Hero is basically an Indian company and the Honda is a Japan based company. The best known bikes of the Hero Honda company are the Hero Honda splendor and passion pro. The Honda Company also has its own model such as Honda Activa and Twister. The two companies were collaborated and the joint ventures of the both companies have rushed the Indian markets with their successful and good performance bikes. The collaboration of the both companies has come to an end. The Hero Company is going to take the 26 percent stake of the Honda Company.

The recent reports show that the split of the both companies has successfully cleared one more hurdle and that is the FIPB. The foreign investment promotion board (FIPB) has cleared the proposal for the Hero group to elevate an amount of Rs. 4, 500 crore from the overseas investors. This is a clear fact that the Hero company needs around Rs. 4, 500 crore to buy the 26 percent of stake of the Honda company. Since the proposal is more than Rs. 1, 200 and therefore it requires the approval of the cabinet committee on Economic Affairs. The Hero Company will raise the money in the name of Hero investment (HIPL) which sill be anon-banking financial company and which owns 17.33 percent in the joint venture. The Hero Company also owns 8.67 percent stake in the Hero Honda venture through BCIPL (Bahadur Chand investment).

The reports also says that, before the split of the two companies, the PE firms roles in helping the Hero group for acquiring the stake. The Hero Company is in discussion with the six private equity firms including Walburg Pincus, Carlyle, Bain capital, TPG and GIC of Singapore. The Hero group is going to invite bids from these firms and will accept the one which is paying the highest rate. For the present time, nothing has been finalized and these PE firms have agreed to fund the transaction. As a result of this the PE firms are going to own an effective holding of 16-18 percent in the Hero Honda motors. This is going to be a better part of business for the Hero Company which will be using the technology of the Honda Company for some years according to the agreement.