Shriram Family Rooting Against the Sale of its Stakes in Honda Siel

The Usha International (UIL) which is led by Siddharth Shriram has finally decided to continue being in the joint venture for making cars with the Honda Siel Cars India (HSCI). The Usha International was talking terms for an exit for some months but has now finally settled on making further investments and raising stakes in the company. According to the sources, UIL maintaining the stakes in the joint venture might result into deepened frictions between the partners. The management of HSCI which was appointed of Honda was accused by the Indian partner of being engaged in the violations of corporate governance and also of bypassing the minority shareholders.

According to Krishna, Shriram’s son, in the light of current strategy and investment plan the future of Honda in India is pretty bright and UIL has confidence in the prospects of HSCI. He also mentioned that the company is looking forward to subscribe to the future rights issue of HSCI. This decision followed the dip in UIL’s stake from 5 percent to around 3.6 percent which was a result of the decision of not participating in the Rs. 1,200 crore rights issue that happened last fiscal year.

Sources also suggest that the reason behind Shriram family extending the stay in the JV is the valuation offered by Honda for UIL’s stake which the family did not agree to. As revealed, the cause for contention between the partners was the price demanded by UIL as it was much higher than Rs. 57 per share that Hona had paid in the last FY during the rights issue. Honda India was ready to pay a liberal premium as compared to the last rights issue but the Shriram family was looking for something quite over Rs. 100 per year. Honda Siel Cars as expected did not agree to this. But going ahead it would be interesting to know how much UIL will spend and how it is going to fund the next wave of investments in HSCI.

There is a clause in the joint venture that keeps UIL free to sell its stakes to any third party and reportedly Honda was completely in accordance if UIL wanted to follow this. But nothing has been made clear on whether UIL has approached any third party or not. The sources state that both the parties have not reached to any amicable valuation for stakes or final decision about the holding of UIL in HSCI. With the trust factor and diesel engine missing from the foundation of HSCI, the company might incur more damage than a dip of 8 percent in the sales volume and supply crunch because of Tsumani in Japan and floods in Thailand.

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