KOTAK Mahindra Group and Ford Credit International (FCI) announced the realignment of their nine-year-old joint venture. As part of the restructuring, the Kotak Group will acquire the 40% stake in Kotak Mahindra Primus (KMP) held by FCI, giving the Kotak Group complete ownership of KMP. FCI will, at the same time, increase its 55% stake in Ford Credit Kotak Mahindra (FCKM) to 100% ownership. FCI will acquire the remaining 45% stake, consisting of 35% held by the Kotak Group and 10% from Mahindra & Mahindra (M&M).

KMP officials refused to divulge the valuation of the deal, but sources indicate that Kotak group acquired Ford's stake in Kotak Primus at Rs 140 crore which would value the company at Rs 350 crore. “It's sensitive and confidential information bound by FIPB and RBI issues,”the official said. KMP is engaged in the business of financing non-Ford passenger cars and FCKM is engaged in financing Ford passenger cars. With this realignment, the joint venture between Kotak Group and FCI will be terminated. KMP will drop the word ‘Primus' from its name and FCKM will drop the words ‘Kotak Mahindra' from its name. The transactions are subject to regulatory approvals including those from the Foreign Investment Promotion Board (FIPB) and RBI.

Uday Kotak, vice-chairman and managing director, Kotak Bank said, “KMP, is committed to continue building its car finance franchise and maintain its position as a significant player in the segment.” Added Mike Kozel, president of Ford Credit's Asia-Pacific Region, “ The new structure is consistent with our global strategy to focus on supporting Ford Motor Company products and Ford dealers, and Ford Credit International in India remains committed to that objective.”

Citigroup advised Ford on the Kotak Primus transaction. KMP, one of the top three car financiers in the country, was established in 1996 and is a 60:40 joint venture between Kotak Mahindra Bank (erstwhile Kotak Mahindra Finance) and Ford Credit International (FCII). FCII is a 100% subsidiary of Ford Motor Credit Company. As per the JV structure, KMP pays royalty to Kotak Mahindra Bank. The annual royalty payment, amounting to Rs 58 crore, is due on January 1, ‘08.

FCII has contributed Rs 427 crore till December 31, ‘03 to the equity of KMP as per the JV agreement between the two partners. The last capital contribution of Rs 35 crore was made in December ‘03.

During ‘03-04, disbursements from KMP rose by 27% to Rs 1,514 crore from Rs 1,189 crore in ‘02-03. The larger asset base enabled KMP to report a higher income during the same period. Despite the continued high operating expenses due to the royalty payments, its profit before tax (PBT) has improved to Rs 19 crore during ‘03-04, compared with Rs 17 crore during ‘02-03. KMP reported a profit after tax (PAT) of Rs 12 crore in ‘03-04, compared with Rs 11 crore in ‘02-03. Off late, this business has been under pressure due to the rate wars between various players in the market. Financial solutions include retail lease, hire-purchase and loans, buyback plans to corporates and wholesale finance facility to Ford authorised dealers for new and used cars, spares & accessories and equipment.