Honda Siel Car India is understood to be planning to raise Rs 2,000 crore to fund expansion at its Tapukara plant in Rajasthan amid speculations of tiff between joint venture partners -- Honda Motor Co and Siel Ltd.
Sources in the know of development said with the Indian partner Siel not bringing in any fresh equity capital, its stake in Honda Siel Cars India (HSCI) may come down further.
"The company had planned to raise a total of around Rs 3,200 crore, of which Rs 1,200 crore has already been mopped up through a rights issue," a source said.
However, it could not be ascertained how HSCI plans to raise the rest of the funds, but it is understood to be keeping its options open between another rights issue and loan from banks.
When contacted, an HSCI spokesperson said: "India is definitely among the key markets for Honda, and HSCI is committed to this market with ambitious growth plans. However, we do not have any specific information to share at this moment."
Another source, however, said: "The funds will be primarily used for expansion of the company's second plant at Tapukara for car assembly as the first plant at Greater Noida is expected to run full capacity this year."
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Some part of the fresh funds would also be used for setting up diesel engine production line at the Tapukara plant, apart from research and development activities, the source added.
The development comes at a time when Siddharth Shriram-led Siel Ltd is understood to have asked for a high price, reported to be around Rs 100 per share, for opting out of the JV that was formed in 1995.
Honda, on the other, has not been willing to give in to the demand of the partner, a source said.
According to sources, Siel had bought HSCI shares from Honda in September last year at a price of Rs 52.80 apiece to increase its stake to 5% from 2.6% earlier.
In March this year, Honda had subscribed to a rights issue of HSCI at Rs 57.1 per share, in which Siel did not participate. Following this, Siel's stake in HSCI has come down to 3.16%.
"There is a gross mismatch in the valuation of the company between the two partners and that has led to a tiff," a source said.
Repeated calls made to Shriram remained unanswered.
When asked if Shriram would continue to be in his position in HSCI despite Siel's stake coming down, the HSCI spokesperson said: "Siddharth Shriram is the HSCI Chairman and will continue to be so."