Hero to buy out Honda stake in Indian Joint Venture for $851.million

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Hero Investments is buying the stake at 739.97 rupees a share, it said in a statement, reflecting a nearly 50-percent discount to Tuesday's trading price. Shares in Hero Honda fell more than 3 percent following the news.

"People are feared that because of the low price, the company would be compensating Honda with higher royalty," an analyst with a local brokerage told Reuters, declining to be named.

Hero will pay Honda a royalty in exchange for technology, but details of that deal have not been disclosed.

Private equity firms Bain Capital and the Government of Singapore Investment Corp have agreed to invest in Hero Investments to help the group fund the acquisition, Hero Group said in a statement.

"The price at which it would give to PE investors will be more relevant," Ajay Shethiya, analyst with Centrum Broking said.

Financial details of the deal with Bain and GIC were not disclosed, but the company said it would use the funds to retire a significant portion of debt raised for the buyout.

Hero Group has raised nearly $749 million in debt to fund the buyout, a person with direct knowledge of the matter told Reuters.

The Hero Honda joint venture was India's largest motorcycle manufacturer with more than half the domestic market.

The deal allows Hero Group to explore new products and export opportunities in markets where Honda has a presence, a move it was barred from while in a venture with the Japanese automaker.

Honda also has a wholly owned subsidiary in India, which makes motorcycles and scooters.

Honda Motorcycle and Scooter India will invest 5 billion rupees ($110 million) in a new plant in the Indian state of Rajasthan, an executive said on Wednesday.

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