Munjals turn to PE for stake buy

Hero Honda, India's largest two-wheeler maker, could see a change in ownership as the Delhi-based Munjal family seeks to buy the stake held by partner Honda Motor Company of Japan in the joint venture. The Indian promoters are reportedly talking to private equity (PE) players to raise the money needed to buy the 26 per cent stake held by Honda Motor. The purchase could be made in tranches of 6.5 per cent each.

Sources close to the development said six of the top PE players in India — including Blackstone, KKR, Carlyle, Temasek and CD&R — and others have examined the deal. While the auto sector has been growing in double digits, PE players say that the deal would be discounted because, as one PE player explained, because “Honda wants to leave the JV”.

“The Munjals have been exploring this proposition as Honda plans to exit. They are still evaluating the structure of the deal and talks have been going on for the last three to four months. But the Munjals are looking to raise debt. In case they cannot, they will look at equity. Honda’s stake is huge, hence an equity partner would be the only way,” said another leading PE player on condition of anonymity.

Bankers and PE players were of the opinion that a deal could take another two to three months to fructify, as discussions are only at an early stage.

Hero Honda shares closed 2.14 per cent higher at Rs 1,736.15 on the Bombay Stock Exchange on Friday, against a closing price of Rs 1,699.75 a day earlier.

Meanwhile, both the Hero group and Honda Motor have denied the development. Anil Dua, senior vice-president (sales & marketing) at Hero Honda, refuted reports of a stake sale by the Japanese partner in Hero Honda. Sunil Munjal, managing director and chief executive, Hero Corporate Services, did not respond to calls and messages, despite repeated attempts.

A statement issued by the Hero group on Tuesday after reports first surfaced of a possible Honda Motor exit surfaced, said, “The news report is incorrect and speculative. We have already conveyed that the Hero group and Honda Motor have for years enjoyed very cordial and fruitful relations, and there has been no change in the relationship in any manner.”

At today’s closing price on the BSE, the stake held by Honda Motor is valued at Rs 9,013 crore. The company owns 51,918,750 shares in Hero Honda. Hero Honda's cash reserves presently stand at around Rs 3,500 crore, down from Rs 5,400 crore as it paid a 4,000-per cent special dividend.