As per the scheme, Bajaj Auto will incorporate two wholly owned subsidiaries, Bajaj Holdings and Investments Ltd (BHIL) and Bajaj Finserve Ltd (BFL).
MUMBAI: After years of being on the backburner, Bajaj Auto Ltd (BAL) on Thursday said it is splitting the company into three as part of a restructuring exercise, which is seen by many as a step that would help chairman Rahul Bajaj’s two sons - Sanjiv and Rajiv - function independently.
As per the scheme, Bajaj Auto will incorporate two wholly owned subsidiaries, Bajaj Holdings and Investments Ltd (BHIL) and Bajaj Finserve Ltd (BFL).
While Bajaj Auto would transfer its auto business, along with Rs 1,500 crore in cash and cash equivalent to BHIL, its insurance subsidiaries, consumer finance company, windmill farms, and Rs 800 crore of cash and cash equivalent would go to BFL. BHIL would be renamed Bajaj Auto and Bajaj Auto would be called BHIL, to reflect their true line of business.
The holding company would have cash and cash equivalents worth over Rs 6,000 crore, including ICICI Bank’s 4.12% stake. All the three companies are expected to be listed by March.
An existing Bajaj Auto shareholder would get one BHIL share with a face value of Rs 10 and one BFL share with a face value of Rs 5. Post- restructuring, the equity of BFIL (the existing Bajaj Auto) would be Rs 101 crore, and that of Bajaj Auto (the new manufacturing company) 145 crore. Bajaj Finserve’s equity would be Rs 72 crore.
The demerger process, however, received a big thumbs, with the Bajaj Auto shares closing 7% down at Rs 2,500 on the BSE.
“This is because the market is concerned about the call option given to Allianz in its general insurance subsidiary to 50% (from the current 26%) and to 76% (from the current 26%) in the life insurance subsidiary,” said an analyst with a domestic brokerage.
According to the scheme, Allianz can increase its stake in the two insurance companies if the government regulations allow so in the future.
Analysts view the price at which Allianz can increase the stake as unfavourable to Bajaj Auto and this led to the stock price crash.
The stock was trading firm after the demerger plan was announced, but it plunged soon after the Allianz call option announcement was made.
On the structure of the three companies, chairman Rahul Bajaj said Bajaj Auto would continue to run the way it is currently.
“There is no separation of ownership. There is only separation of work. Rajiv would continue to be MD and CEO of Bajaj Auto while Sanjeev would continue to be executive director and have additional responsibility of Bajaj Finserve. The board (of the new and existing Bajaj Auto) would be, by and large, unchanged,” Rahul Bajaj said.
Over time, Sanjeev, who currently looks after exports, besides finance, would cede over his international marketing team to Rajiv, while increasing his involvement in the insurance and consumer finance companies.
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