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The Bajaj Auto demerger - Views on News from Equitymaster

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The Bajaj Auto demerger

Mar 17, 2008

The demerger of Bajaj Auto, India’s second largest two-wheeler manufacturer, which was approved by the board and subsequently by the High Court, took its first step last Friday (15th March, 2008) towards being consummated on the benchmark indices. As per the plan of the demerger, Bajaj Auto Holdings and Investment, the investment arm of the business and the one, which would hold a 30% stake each in Bajaj Auto (the auto business of the company) and Bajaj Finserve (the finance and insurance business of the company), has gotten listed on the bourses and is currently trading at Rs 721 per share. The details of the scheme is as given below:

  1. Bajaj Auto Ltd has formed two subsidiaries viz.

    • Bajaj Holdings and Investment Ltd (BHIL) and

    • Bajaj Finserv Ltd (BFL).

  2. BAL has subscribed to the shares of the two companies as under:

    • BHIL - 43.5 m shares of Rs 10 each i.e., Rs 435.0 m investment.

    • BFL - 43.5 m shares of Rs 5 each i.e., Rs 217.5 m investment.

  3. The auto business of the Company along with all assets and liabilities pertaining thereto, including investments in PT Bajaj Auto Indonesia (a subsidiary) and in a few vendor companies, would be transferred to BHIL. In addition a total of Rs 15 bn in cash and cash equivalents would be transferred to BHIL.

  4. The wind power project, investments in the insurance companies, Bajaj Allianz Life Insurance Co Ltd and Bajaj Allianz General Insurance Co Ltd, and investment in the consumer finance company, Bajaj Auto Finance Ltd, along with relevant assets and liabilities would be transferred to BFL. In addition, a total of Rs 8 bn in cash and cash equivalents would be transferred to BFL.

  5. The remaining assets and liabilities including investments in group companies and balance cash and cash equivalents would be retained in the existing BAL.

  6. As part of the scheme, Bajaj Holdings and Investment Ltd (which would be the new auto company) would be renamed as Bajaj Auto Ltd and the existing Bajaj Auto Ltd would be renamed as Bajaj Holdings and Investment Ltd, (which would act as the primary investment company). Requisite changes would be made in the respective charter documents of these companies.

  7. All shareholders in existing BAL on the record date would become shareholders in each of the new companies and would be issued shares of the two new companies in the ratio of 1:1.

    After such issuance, each shareholder would, for every share held in existing Bajaj Auto Ltd.

    • Continue to hold. one share of BHIL (existing BAL) of face value of Rs 10 each fully paid up.

    • Be allotted one share of the new BAL (existing BHIL) of face value of Rs 10 each filly paid up and

    • Be allotted one share of BFL of face value of Rs 5 each fully paid up.

    The holding of BHIL post demerger in the two resulting companies would be 30%, while the holding by the existing shareholders of erstwhile BAL would be the remaining 70%. In this manner, the shareholders of the demerged company shall directly and indirectly hold 100% share capital of the resulting companies.

    Thus, in accordance with the demerger plan, BHIL, which will now function primarily as investment company and hold 30% each in Bajaj Auto and BFL has been listed with the other two likely to be listed towards the end of April 2008. Till such time the new Bajaj Auto gets listed, we are stopping coverage of the company. Subscribers to our research report will thus not be able to access the research report on the company.

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