Hero Honda Promoters Stake Sale Increased Royalty Deal to Fleece Minority Investors

Here Honda which is a Joint Venture between Japanese Automajor Honda and the Hero Group of India is restructuring such that Honda will exit the JV.Note Hero Honda has been immensely successful over the last 2 years riding a vehicle boom in India.While other autos stocks like Mahindra,Tata Motors have risen a lot,Hero Honda has been the star with its leading marketshare in the motorcycle market of India.The terms of the deal in which Honda will sell its 26% stake in the company to the Hero Group is very damaging to minority investors in the JV.According to the deal proposed by the Hero Group and accepted in principle by Honda,the Hero Group will get the 26% at a sharp discount from its marketprice and in return Honda will get much higher royalties for the next 3 years.This is an open and blatant looting of the minority investors.Note the beneficiaries of this deal will be the promoters at the expense of minority investors since they will have to bear the burden of much higher royalties in the future.

Note stake sales by promoters in Indian companies frequently involve fleecing the minority investors.It has happened numerous times without the Regulator doing much.Taking advantage of legal loopholes,promoters of even reputed companies like Siemens,Satyam(before the Raju Scandal),Cairn,Maruti Suzuki have taken the retail investors for a ride.However increased institutional activism has helped the case though some promoters still manage to make money unethically.Investing in the Indian markets has always been hazardous as even high quality companies like Hero Honda can fleece retail investors blatantly.

Hero Honda slips on JV breakup, investors may veto deal terms

Shares in Hero Honda Motors, India’s largest motorcycle manufacturer, fell nearly 5 per cent early on Monday on reports that Honda had agreed to exit its stake in the joint venture. Institutional investors are also uneasy about the fact that the Hero group is likely to sell Honda’s 26% holding to private equity investors at a premium to the purchase price but below the market price, say people familiar with the thinking of the shareholders.“Institutional investors will protest if the price of the stake sale is at a discount to the current market price. There is also talk about increase in the royalty to Honda. Both these steps are not good for minority shareholders,” said the official who spoke on the condition that he not be named, as he is not authorised to speak to the media.