Bain, GIC pick direct stake in Hero MotoCorp as promoter entity merges with two-wheeler maker

Private equity firm Bain Capital and Singapore’s sovereign wealth fund GIC have picked direct equity stake in public-listed company Hero MotoCorp, the world’s largest bike-maker in terms of volumes. This follows closure of a transaction announced last year where one of the promoter group entities merged with the bike maker.

The two financial investors held 28.37 per cent stake in promoter group holding entity, Hero Investments Pvt Ltd (HIPL), which has been merged with the listed group flagship of the Munjal family. Bain Capital owned 19.81 per cent while GIC held 8.56 per cent in HIPL; the rest was owned by the Munjals. HIPL, in turn, owned 43.33 per cent in Hero MotoCorp.

Bain Capital has picked 8.58 per cent in Hero MotoCorp while GIC now holds 3.71 per cent in the bike maker.

The two investors’ combined holding is worth around Rs 5,000 crore ($780 million) given Hero MotoCorp’s current market price. They had reportedly invested around Rs 3,650 crore ($820 million back then) in HIPL a little over two years ago. So they are already sitting on an unrealised gain of around 37 per cent on their investments although it has shrunk in dollar value due to depreciation of the Indian currency against the US dollar.

The move will pave the way for the financial investors to make easy market exit in the future rather than banking on a secondary sale to another PE firm, a strategic sale to another auto maker or a buyout by the promoters.

Hero MotoCorp scrip was down 2.85 per cent in mid-day trade, quoting at Rs 2,029 a share in a weak Mumbai market on Thursday.

Bain Capital and GIC had invested in HIPL in 2011 to bankroll the Munjal family for buying out Honda Motor from their more-than-two-decade-old joint venture. The Munjals acquired the 26 per cent stake held by Honda Motor through HIPL, financed through a loan, and then sold a minority stake in HIPL to Bain Capital and GIC to retire the debt.

The amalgamation of HIPL with the listed entity has also made Hero MotoCorp one of a few companies in the 30-stock benchmark Sensex where PE firms have direct equity exposure.

Another Singaporean sovereign wealth fund Temasek owns an indirect stake in the telecom giant Bharti Airtel while GIC has direct exposure in HDFC. Temasek and GIC have also invested in ICICI Bank while GIC and Abu Dhabi’s sovereign fund owns stake in HDFC Bank, the biggest private bank in terms of market cap.

With the merger of HIPL with Hero MotoCorp, the promoter group’s holding has also changed. As of June 30, 2013, the promoter group held 52.21 per cent in the company. This included the holding of HIPL, partly owned by Bain Capital and GIC. After the merger of HIPL with Hero MotoCorp, promoter holding has shrunk to around 40 per cent.

For more on group restructuring click here.

(Edited by Joby Puthuparampil Johnson)

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