Ashok Leyland may divest stake in Nissan joint venture

18 June 2008

Mumbai: Commercial vehicles manufacturer Ashok Leyland is reported to be looking at divesting part of its stake in a joint venture with auto major Nissan to its shareholders.

Speaking to the media on the sidelines of a conference, Ashok Leyland chief financial officer K Sridharan said that the company was looking at options to give incentives to its own shareholders, which could give them some sort of entitlement in the joint venture, for which the modalities are still being worked out. Usually, this takes the form of a right issue that seeks to reward existing shareholders.

Ashok Leyland is the major partner in the joint venture, owning 51 per cent. The joint venture will make light trucks in the 2.5 ton to eight ton gross vehicle categories, under the Ashok Leyland and Nissan brands. One of the vehicles will be jointly developed by the two partners, and will be made for the Indian market, while the other will be from the Nissan stable that is already under production and sells in markets outside of India.

The Ashok Leyland branded vehicle will address the lower spectrum of the market while Nissan vehicles will aim at the top end. The vehicles would be manufactured in India by 2010, and will be marketed and distributed through Ashok Leyland dealerships.

The proposed investment in the joint venture is Rs2,400 crore, of which Ashok Leyland would contribute around Rs600 crore. The total capital expenditure for the next three years is estimated at Rs3,000 crore, having a debt component of Rs1,750 crore and equity component of Rs1,250 crore. Ashok Leyland is reported to be in negotiations with the Japanese auto major to leverage some kind of incentives for its shareholders. Reports indicate that this could take the form of a rights issue, debentures or any such instruments.

The Indian truck maker is seeking to de-risk its business model, which is facing "many uncertainties in global scenario", specially in relation to the price of oil. According to Ashok Leyland managing director Seshasayee, the company is bracing for a worst case scenario in which an economic slowdown could be precipitated by global slowdown, which in turn is triggered by soaring oil prices.