The Foreign Investment Promotion Board has cleared Premier Automobiles Ltds proposal to enter into a joint venture with Fiat India Automobiles Pvt Ltd, a wholly-owned subsidiary of Italian giant Fiat Auto Spa, to assemble and manufacture Fiats Uno range of compacts in India.
The FIPBs approval is subject to ratification by Union industry minister Murasoli Maran. Premiers proposal had sparked off a controversy after it resulted in the first of two cases of an Indian partner in a joint venture being dragged to the International Court of Arbitration (the Suzuki-government row being the other).
French auto major Peugeot, Premiers partner in PAL-Peugeot, had moved the international court against PALs proposed venture with Fiat. Peugeot had alleged that the proposed venture violated a non-competing clause in the PAL-Peugeot joint venture agreement.
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Under the proposal, Fiat India will pump in Rs 38 crore to pick up a 51 per cent equity stake in the joint venture, named PAL Auto Ltd. The balance 49 per cent will be brought in by PAL, which is expected to meet its equity commitment by transferring its Rs 501 crore manufacturing facility at Kurla to PAL Auto.
The Kurla facility rolls out PALs range of Premier Padmini cars, as well as Fiats petrol version of the Uno, at present. The unit is licensed to manufacture 60,000 cars per annum.
Fiat plans to introduce a diesel version of the Uno, which is expected to be priced at around Rs 4.5 lakh, by December. Premier Automobiles is also expected to hand over production of Premier Padminis to PAL Auto Ltd.
The FIPB has also allowed Fiat India to pump in Rs 200 crore as preference share capital in the joint venture, apart from permitting it to subscribe to an issue of convertible shares. The shares will carry an option of redemption after seven-10 years from their date of allotment.
The proposed joint venture will make a one-time lumpsum payment of $34,52,000 (about Rs 12.43 crore) as technical fee, $365,000 (about Rs 1.31 crore) as design & drawing fee and $13,64,800 (about Rs 5 crore) as fee for engineering services to the Italian auto giant. The royalty payment will be at the rate of 3.5 per cent (subject to taxes) on domestic sales and exports.
In its approval letter, the FIPB has stipulated that the joint venture project must ensure dividend-balancing. In other words, dividends repatriated from India must be balanced by inflows of funds into the company.
The joint venture will also have to adhere to guidelines laid down by the Reserve Bank of India and the Securities and Exchange Board of India.