Hero Group owners Munjals are ready to buy out Honda shares in age old Hero Honda JV for $1 billion. Honda Motors owns 26 percent stake in the joint venture and will sell its shares in a two-tier deal. Hero will acquire the stake through special purpose vehicle by raising a bridge loan The Indian promoters will subsequently divest 60-70% stake in this SPV to a group of 2-3 private equity firms to pay back the loan. The Munjals are likely to use its holding companies Hero Investments, Bahadur Chand Investments Pvt Ltd (BCIPL) to sell part stake to private equities via a special purpose vehicle.
All the six PE firms have shown keen interest and have assured Munjals that they would remain committed for long term, a senior official of a PE firm said. “However, the second tier of the deal is not yet frozen as unlike conventional PE transactions, Munjals have asked the PE firms to bid for the stake.”
According to sources familiar with the development, the two partners have agreed that current royalty rate per model paid to Honda would not change, which in 2009 -10 on an average was 2.3 per cent to 3 per cent of sales. Further, Honda will continue to provide technology and models to the Hero Group during the transition period, for which the minimum is till 2014 as per their existing joint venture agreement.
