Usha International (UIL) decided to keep its stake in Honda Siel Cars India (HSCI) after months of deliberations with its Japanese partner. The Indian company, which is headed by Siddharth Shriram, also said that it aims to infuse cash into the venture and further increase its share.
This news regarding new investments in the venture came after UIL held meetings with Honda over the course of several weeks to sell its stake in the company. According to sources, the decision to finally retain its share in the Joint Venture (JV) by the Indian partner of the alliance will increase the tension between the two companies even more. It is said that UIL pointed fingers at the top management of HSCI for violating the rules of corporate governance and bypassing minority stakeholders. The management team of the company is appointed by Honda only.
Scion of the Shriram family, Krishna said that UIL will remain a part of HSCI since it has full faith in the growth potential of the venture. He commented, "We are looking at subscribing to the future rights issues of HSCI as the best way forward for us. With the current investment plan and strategy, Honda's future in India appears extremely bright." Earlier, the Shriram family did not partake in the Rs. 1,200 crore rights issue held in the previous financial year. Back then, UIL saw its stake in the JV go from 5 per cent to 3.6 per cent.
As per sources, UIL is not content with the amount offered by Honda for its stake in the company and, therefore, had to put its plans to leave the JV on hold for now. However, neither the amount that the Indian firm will invest the next time HSCI raises funds has been announced, nor is it clear how it will come up with the required capital.
Reportedly, the value of UIL's shares was also a key factor when the two companies were discussing transfer of stake. In the latest round of negotiations, Honda offered UIL Rs. 57 for each share, the amount it paid in the rights issue of the previous fiscal, while the Shrirams asked for a higher sum. It is said that the Japanese company was ready to shell out a 'handsome premium' over Rs. 57 per share, but UIL still continued to ask for much more. According to a source, the Indian partner was looking for more than Rs. 100 for each share, which Honda declined to pay.
Under the stipulations of the JV, the Shrirams can choose to sell their share in the company to a third party as well. Reportedly, Honda will not object if the family eventually does sell its 3.6 per cent stake to someone other than the two parties. It is not known if UIL has contacted a third party to sell the stake as of now. As per a source, "However, whenever they do so, they have to inform Honda about it."
Due to the unavailability of a diesel powered car in its portfolio as well as ever-increasing competition from rivals, the sales of HSCI declined by 8 per cent in the last financial year. However, the company also factored in the hindrances in component supply owing to floods in Thailand and earthquakes in Japan as the reasons for this downfall in volumes.
Honda and UIL have already held a round of discussions regarding the valuation of the latter's stakes. However, according to sources, "But no solution has been reached as the two have not been able to arrive at an amicable valuation for UIL's holding." It is anticipated that the latest series of negotiations between the two parties will continue for some time. However, the lack of trust between them may make it difficult for them to make a sound decision.
