The new shareholding structure was decided upon at Ind Auto's board meeting on Monday, where the cash-strapped Doshis of Premier Automobiles (PAL), the joint venture partners of FIAL, expressed their inability to pump in their share of the additional equity.

As a result, the stake of the domestic partner in the joint venture has dropped from 24 per cent to 5 per cent. Ind Auto manufactures the Fiat's Uno and Siena in India.

Sources said that the fresh equity infusion was necessary, as Ind Auto has lined up investments worth Rs 160 crore. The new shares carry a premium of around Rs 90 per share, and have increased Ind Auto's paid-up equity base by Rs 16 crore.

FIAL, which is now in almost total control of Ind Auto, is the holding company for Fiat Auto Spa in India. As per the joint-venture agreement, the Doshis have the option to raise their stake later to a maximum of 49 per cent. The Doshis had spun off PAL's Kurla facility into a joint venture with Fiat. The company, christened Ind Auto, kicked off as a 49:51 joint venture, with Fiat increasing its holding to 76 per cent at a later stage. The Kurla unit has a capacity to roll out 50,000 cars annually.

Unlike in the case of French auto major Automobiles Peugeot, which was not allowed to hike its stake in PAL Peugeot, the Doshis have allowed the Italian car-maker to tighten its control over the venture.

In the ill-fated joint venture PAL-Peugeot, both the partners held 32 per cent each, with financial institutions controlling the rest. The joint venture ran into financial problems, and Peugeot expressed its willingness to pick up additional equity at par, which would have raised the company's stake from 32 per cent to 48 per cent.

However, the proposal did not find favour with the domestic promoters, and Peugeot walked out of the joint venture last year without resolving key issues, including outstandings to financial institutions, vendors, and even booking advances.

Peugeot later decided to write off claims aggregating Rs 85 crore from the ill-fated joint venture and authorised its Indian partner to work out a restructuring package. The move came as a breather for PAL-Peugeot, which is facing liquidation proceedings from banks and financial institutions for non-payment of dues.

Insight
Doshis' inability is not surprising
With the Doshis' stake in Ind Auto being reduced to 5 per cent, the family which traces its origin to pre-independent India's biggest industrialist Walchand Hirachand, seems to have lost all the family silver.

The cash-strapped family's inability to infuse additional capital is not surprising. In fact, financial institutions have been pressurising the Doshis to liquidate their huge real estate holdings to pay off the debenture holders. The market leader of yeateryears seems to be no longer in the Indian auto race.

-- Gaurav Dua