Honda Siel Cars India (HSCI), a business alliance between Shriram family of Usha International and Japanese automotive giant Honda, is again planning to raise funds. According to two officials associated with the development, the company has planned to raise Rs. 2,100 crores this time around. This action will further consolidate the position of the Japanese partner in HSCI, a Joint Venture (JV).
HMC currently holds a stake of approximately 97 per cent in HSCI, which will give it a dominant position in its Indian division. This new plan to raise Rs. 2,100 crores is quite similar to the latest rights issue which was held in November 2011. At that time, HMC supported the rights issue of Rs. 1,200, whereas the Indian player of JV stayed at bay from the same.
Before the rights issue in September 2011, the Shriram family raised its stake with the help of Usha International by choosing to buy back its shares in HSCI. The Shriram family did this by gaining a stake of 2.4 per cent from HMC in the venture and, thus, raised its total stake to 5 per cent. Usha International paid a sum of Rs. 45 crores to HMC at the rate of Rs. 52.8 per share. Since the Indian company in the venture did not participated in the raising the rights issue in November 2011, its stake then fell from 5 per cent to 3.16 per cent.
With the second round of fund raising set to commence, analysts are intrigued whether Usha International can come up the requisite cash required to retain its marginal stake in the alliance. It is reported that the funds are required by HSCI for establishing production lines at Tapakura, Rajasthan, where the company will build components and diesel motors. HSCI is set to introduce six cars in the market by the end of 2015, which will also include revised editions of previously launched models. However, this activity will also require a considerable investment.
On the issue of fund raising, the Japanese company gave an ambiguous reply, stating, “India is definitely among the key markets for Honda, and HSCI is committed to this market with ambitious growth plans. However, we do not have any specific information to share at this moment.”
When Krishna Shriram, the head of Shriram family, was asked whether Usha International will give up its stake in HSCI, he said, “There are no developments. We may even keep our stake.”
Thereafter, Krishna Shriram expressed his group's concerns regarding the JV possibly for the first time by saying, “Our concerns are the missteps in acceptable corporate governance issues in letter and spirit by HSCI. A mature acknowledgement of this is what we would seek. Valuation methodologies and cash values are secondary issues. We will have many partnerships in future and we do not want our reputation as exceptional partners get clouded by the current proceedings.”
In the year 1995, Shriram Industrial Enterprise Limited went into a 40:60 Joint Venture with Honda Motor Company, which gave birth to HSCI. In order to cope up with the development plans, Siddharth Shriram sold his 38 per cent stake in HSCI, with the opportunity to buy back shares. However, the buyback option was reduced less than half as the Japanese partner infused cash in the venture to keep pace with its expansion plans.
