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Thursday, Feb 07, 2002

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Hyundai planning to come out with IPO

BL Research Bureau

HYUNDAI Motor India (HMIL), the wholly-owned subsidiary of the Korean automobile major, Hyundai Motor Corporation (HMC), has initiated discussions with merchant bankers for a possible initial public offering (IPO) of its shares. The issue is likely to be put through late this year or early next year.

The IPO is likely to be done through a divestment of existing shares held in the Indian subsidiary by the Korean Chaebol and may be preceded by a private placement of shares in favour of financial institutions, according to well-placed sources. While HMIL is also in the process of deciding the timing and size of the proposed issue, the total divestment is likely to be in the region of about 24 to 26 per cent of the total equity invested by the Korean parent.

The sources added that the Korean parent feels that the Indian subsidiary has generated considerable brand awareness in the domestic market with popular passenger cars such as the Santro and the Accent.

Consequently, HMC is of the opinion that an IPO now will enable the Indian company leverage such brand consciousness amongst the investing public. While the primary market is currently starved for good quality IPOs, the expectation is that the Hyundai brand will help the company put the issue through without any glitches. Post-divestment, HMC is expected to plough back the funds obtained from the issue into the Indian subsidiary.

HMIL is in the process of finalising additional investment plans required for manufacturing at least two new models in the next 18 months. The company is mulling the setting up of an additional assembly line, based on the potential demand for two of its proposed new models — the Terracan and the Matrix.

HMIL is also working out the modalities of funding its expansion requirements. The funds are expected to be mobilised from internal accruals, financial institutions and a possible plough back of issue proceeds by the parent. If the IPO goes through, it would be the first subsidiary of a multinational automobile company in India to go public.

In 1999, the Korean automobile major had deferred a proposal to offload 14.2 per cent equity in its wholly-owned Indian subsidiary for at least two years, saying that it would wait until HMIL becomes profitable and builds a respectable brand to come out with an IPO. HMIL had also got the nod of the Foreign Investment Promotion Board (FIPB) to shelve the divestment proposal, which it had envisaged in the original foreign collaboration agreement. Company officials had also mentioned then that the likely year during which such an equity divestment could be taken up would be 2002-03.

The Korean company has so far invested over US $650 million in its India operations. HMIL's current equity capital is to the tune of Rs 800 crore. The company reported a loss of Rs 64 crore during the 1998-99 fiscal. However, since the year 1999-2000, HMIL has made profits. It had declared a turnover of Rs 3,040 crore last year. This was up 30 per cent over the previous year's turnover of Rs 2,310 crore.

HMIL had also set itself a target of 1.03 lakh cars for the current financial year. In 2000-01, the company sold 86,798 cars, which was 15 per cent higher than the sales in the previous year. The company's plant in Irungattukottai, near Chennai has a production capacity of about 1.2 lakh cars per annum.

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