US private equity firm Bain Capital and Government of Singapore Investment Corporation, the sovereign wealth fund, are close to an agreement to buy a minority stake in listed Indian motorcycle maker Hero Honda from the controlling Munjal family, according to people familiar with the matter.
The expected transaction, for which an exact price has not been disclosed, could be as much as $1.75bn.
Shares in Hero Honda, the world’s largest motorcycle maker, have been dropping on the Bombay Stock Exchange since the start of January. They traded at Rs1,620 on Monday, giving the group a market capitalisation of about Rs320bn ($6.9bn).
Part of the downward pressure has come from concerns over the impact of Honda exiting its stake, but the sale also comes as the Reserve Bank of India is raising interest rates and the stock market has stumbled.
The Munjal family had asked potential buyers of the Honda stake to pay Rs1,500-Rs1,650 a share, people familiar with the matter said.
The proceeds will go to the family rather than the company or its minority shareholders.
The buyers were expected to receive only one board seat, the people said.
The stake in Hero Honda drew intense interest from buy-out firms including Carlyle, KKR, TPG and Warburg Pincus in addition to Bain.
Several sovereign wealth funds showed an interest.
Many of the buy-out firms have dedicated Asia funds and need deals. They are especially interested in India, where economic growth and domestic consumption are strong.
Volumes in 2010 hit $7bn, excluding this deal, though most were passive minority stakes rather than true private equity transactions.
Motorcycle sales are booming in India and across south-east Asia. Last year, Hero Honda produced almost 5m motorcycles.
Honda wants to expand production under its own name in India, leading to the end of the joint venture established in 1984, while the Munjals are anxious to expand abroad themselves.
Honda will continue to provide technology support to the Indian company, according to a licensing agreement signed in January, while the company will pay royalties to Honda.
Before reforms introduced 20 years ago, foreign companies wishing to do business in India were generally forced into joint ventures with local companies. Today, most such ventures have been dissolved.
Source: FT