Bajaj Auto to give way to 3 entities

Bajaj board nod for demerger, floats two arms - Bajaj Holdings, Bajaj Finserve.

Bajaj Auto today announced the creation of two new entities for its automotive assets and financial services, at the same time leaving shareholders with the option to stay invested in both by turning the existing company into a holding company for the two.

The demerger approved by the Bajaj Auto board today is also the first step towards assigning separate businesses for Chairman Rahul Bajaj's two sons, Rajiv and Sanjiv, with the former taking control of the two-wheeler business and Sanjiv managing the financial services entity, Bajaj Financial Services (Bajaj Finserv), which will own the 74 per cent stakes in the life and general insurance joint ventures with Allianz.

Rahul Bajaj indicated as much when he said at a press conference, "We are considering sooner rather than later that the international marketing for two-wheelers be taken over by Rajiv because Sanjiv will have added responsibilities in Bajaj Finserv."

Bajaj added that for the time being, Rajiv will remain the managing director and CEO of the automotive company, which will be eventually called Bajaj Auto, while Sanjiv will remain executive director, given that "for the first two years there will not be too much work at Bajaj Finserv."

The proposal requires court approval and will be effective March 31. The demerger is expected to be complete by the end of 2007 and all the three companies will be listed on the stock exchanges.

A shareholder having one share of Bajaj Auto today will eventually own one Rs 10 paid-up share of Bajaj Holdings, one Rs 10 paid-up share of the automotive entity and also one Rs 5 paid-up share of the financial services entity.

Once the new shares are issued, existing shareholders of Bajaj Auto will hold 70 per cent of the equity of the new companies in the same ratio as their current holding while Bajaj Holding will hold the remaining 30 per cent.

Meanwhile, investors gave the Bajaj Auto plan a thumbs-down, with its stock plummeting 10.5 per cent from the day's high to Rs 2,500.30 in an otherwise buoyant market.

The major portion of the Rs 8,600-crore cash and cash equivalents (valued at market), amounting to around Rs 6,000 crore, will be housed in Bajaj Holding with Rs 1,500 crore going to the automotive entity and Rs 800 crore being transferred to Bajaj Finserv.

Rahul Bajaj said this would allow both the automotive and financial service entities to draw on these resources as and when required.

The 4.12 per cent stake in ICICI Bank will be held by the holding company while Bajaj Finserv will own a 38 per cent stake in Bajaj Auto Finance, a listed consumer finance company.

The issued share capital of the automotive company will be Rs 144 crore while the equity capital of Bajaj Finserv will be Rs 72 crore.