FIPB clears Ford proposal

NEW DELHI, JUNE 20: The Foreign Investment Promotion Board FIPB has allowed Ford Motor of US to hike its stake in its joint venture with M...

NEW DELHI, JUNE 20: The Foreign Investment Promotion Board FIPB has allowed Ford Motor of US to hike its stake in its joint venture with Mahindra amp; Mahindra Mahindra Ford India Ltd to over 92 per cent. It also cleared the proposal of agro-chemicals major Cheminova to inject fresh equity in its subsidiary.

Other proposals which were cleared by the FIPB on Saturday are Floatglass India Ltd, Forbes India Pvt Ltd, PNB Bearings and Kurlon Ltd. The Netherlands-based Cheminova is infusing significant funds in its subsidiary and increasing its operations in the country. The funds will be injected in the subsidiary through the equity route.

Ford Motor Company of US is increasing its equity stake to 92.18 per cent from 50 per cent in the joint venture Mahindra Ford India Ltd MFIL by infusing more funds. The increased paid-up equity after the injection of funds by Ford is Rs 1,727 crore, of which the US company8217;s contribution is Rs 1,592 crore. At present, its share is Rs 863.50 crore.

Mahindra amp; Mahindra iscapping its investment in the venture at Rs 135 crore as it wants to consolidate its core competency in multi-utility vehicles.

Ford is injecting fresh funds in the joint venture to set up its unit in Chennai for the manufacture of its new model Fiesta. The plant will have an installed capacity of 1 lakh units per annum. The plant will also manufacture other models of the company besides Fiesta. The plant will start off with a capacity of 20,000 units.

Ford has invested a chunk of the Rs 270 crore seed capital to improve automation and the level of technology in the plant. Mahindra amp; Mahindra decided to marginalise its equity in view of the continuing losses in the operations. The automobile sector has been in the throes of a severe recession last year. The joint venture company has rolled out around 9,000 Ford Escort models. It had, however, estimated a sale of 15,000 to 16,000 units in this period.

The joint venture was planned at a cost estimate of around Rs 1,500 crore when it was conceived fouryears ago. Mamp;M and Ford have contributed equally to the equity of Rs 270 crore in two instalments of Rs 160 crore and Rs 110 crore. Borrowings have been largely short term in nature and the present loan being planned will be the first long term debt. The decision to abstain from future funding by the company was taken in view of the fact that money was being earmarked for quot;Project Scorpioquot; the code name for the new IDAM integrated design and manufacture product. The vehicle will be launched by the end of 2000 and the present cost estimate for the project is around Rs 600 crore.

Story continues below this ad

Mamp;M sources said that the present arrangement with Ford was unique as it would ensure that the two companies would work together capitalising on each other8217;s strengths.

They said the decision had nothing to do with the performance of the Escort in the Indian market. quot;The move to cease further equity contribution is a result of prioritising funds for the IDAM product,quot; they said.

The new utility vehicle project of M amp; M wouldnot be spun off as a separate company with a joint venture partner but would remain under the Mamp;M umbrella.

It is understood that the site of the existing model Ford Escort at Nashik is likely to be shifted to Chennai.