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Honda to sell stake in India’s Hero Honda: Nikkei
Published on 17 Dec. 2010 12:39 AM IST
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Honda Motor has “formally decided” to sell its entire stake in India’s Hero Honda, Nikkei reported on Thursday, paving the way for the Japanese firm to focus on its wholly-owned Indian unit. Honda’s 26 percent stake in Hero Honda, which was formed in 1984, has a market value of nearly $2 billion.
Selling out of the venture would give the Japanese company the freedom to go it alone in the world’s second-largest market for two-wheelers, where it is building its second wholly-owned motorcycle plant.
Hero Honda called a news conference in New Delhi at 4 pm (1030 GMT), an official of the company’s media relations agency said, without disclosing the subject of the event. Honda said it will make an announcement on the Indian motorcycle business at 1030 GMT. Honda Motor decided to sell its stake in India’s largest motorcycle maker at a board meeting on Thursday, Nikkei business daily reported, without saying where it got the information.
Speculation has swirled since summer that Honda, the world’s biggest motorcycle maker, would unload its stake in the 26-year-old venture to focus on wholly owned unit Honda Motorcycle & Scooter India, set up in 1999.
“Indian partners and the international partners have started to believe that the market size has reached a level where both the partners can play independently,” said Jagannadham Thunuguntla, head of research at SMC Global Securities. The Munjal family, owner of the diversified Hero Group in India, also owns a 26 percent stake in the joint venture. Honda Motor Chief Executive Takanobu Ito earlier on Thursday declined to confirm reports of the breakup, saying Honda and India’s Hero Group have been having various discussions for a long time.
A spokesman for Hero Honda did not respond to calls for comment. Shares in Hero Honda, which the market values at about $7.3 billion, were trading up 2.1 percent at 1,656 rupees at 2:37 p.m. (0907 GMT) in the main Mumbai market that was up 0.8 percent. Hero Honda shares fell as much as 9 percent on Wednesday after Indian media reports said the Indian partner in the joint venture might have to pay higher royalty to Honda after buying the firm’s stake for about half the current market value.
“Going forward, it would be challenging for the Hero Group to maintain the profit margins with the large royalty payouts and also to ensure their R&D efforts to ensure their market share,” Thunuguntla of SMC Global said. When the Hero Honda joint venture was formed in 1984, Indian regulations forbade foreign firms from setting up wholly owned subsidiaries in the country. The rules were relaxed later, helping Honda to set up its own unit. Honda Motorcycle and Scooter India will invest five billion rupees ($110 million) to build a new plant in the Indian state of Rajasthan, an official said late on Wednesday.
Japan’s Suzuki Motor Corp ended a 19-year-old motorcycle venture with India’s TVS Motor in 2001. Indian media had earlier reported that the Indian partners in Hero Honda would first buy Honda’s stake by raising a bridge loan, and then sell a significant portion of the stake to a group of private equity firms.

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