Bajaj Auto Limited , one of India's leading two-wheeler manufacturers, has announced a significant fundraising initiative through its subsidiary, Bajaj Auto Credit Limited. The move comes as part of a broader strategy involving the restructuring of KTM AG, the Austrian motorcycle manufacturer in which Bajaj Auto holds a substantial stake.

Fundraising Details

The Board of Directors of Bajaj Auto Credit Limited, a wholly-owned subsidiary of Bajaj Auto Limited, has approved a comprehensive fundraising plan totaling ₹8,750.00 crore. The plan includes:

1. Fresh issuance of Non-Convertible Debentures (NCDs) up to ₹5,000.00 crore
2. Enhanced limit for issuance of Commercial Papers up to ₹3,000.00 crore
3. Subordinated Debt (Tier-2) issuance limit up to ₹750.00 crore

This strategic financial move aims to strengthen the company's capital structure and provide flexibility for future growth initiatives.

KTM Restructuring and Bajaj Auto's Involvement

Simultaneously, Bajaj Auto is deeply involved in the restructuring of KTM AG, its European partner. Through its wholly-owned subsidiary, Bajaj Auto International Holdings BV (BAIH BV), the company has undertaken several significant steps:

1. Debt Funding: BAIH BV has provided a substantial debt package of €800 million (approximately ₹7,760.00 crore) to address KTM's liquidity challenges and fund its restructuring process.

2. Equity Acquisition: BAIH BV has entered into agreements to potentially acquire a controlling stake in Pierer Bajaj AG (PBAG), which would increase Bajaj Auto's effective ownership in KTM from about 37.4% to 75%.

3. Restructuring Support: The funds provided by Bajaj Auto have been crucial in meeting KTM's creditor obligations and maintaining the continuity of its operations during the restructuring process.

Strategic Rationale

Bajaj Auto's decision to support KTM's restructuring is driven by several strategic considerations:

• Protecting Existing Investment: The move safeguards Bajaj Auto's current investment in KTM, which had a carrying value of ₹4,820.00 crore as of March 31, 2024.
• Expanding Global Presence: By potentially gaining control of KTM, Bajaj Auto aims to enhance its access to developed markets and advanced motorcycle technologies.
• Leveraging Synergies: The company sees opportunities to extract synergies across R&D, manufacturing, and sourcing between Bajaj Auto and KTM.
• Continuation of India Business: The restructuring ensures the continuity of the highly profitable KTM business in India, which contributed significantly to Bajaj Auto's EBITDA.

Regulatory Compliance and Shareholder Approval

While the exigent circumstances of KTM's restructuring necessitated swift action, Bajaj Auto is now seeking post-facto approval from its shareholders for these material related party transactions. The company has emphasized its commitment to compliance and corporate governance, having obtained necessary corporate approvals and made full disclosures at every stage.

Looking Ahead

As Bajaj Auto awaits regulatory approvals for the change in control of KTM, the company is poised to play a more significant role in KTM's future. This includes revamping governance, implementing a turnaround strategy, and exploring synergistic opportunities between the two companies.

The fundraising initiative by Bajaj Auto Credit Limited, coupled with the strategic moves in KTM's restructuring, underscores Bajaj Auto's commitment to long-term growth and its ambition to strengthen its position in the global motorcycle market.

As these developments unfold, stakeholders will be keenly watching how Bajaj Auto leverages this enhanced relationship with KTM to drive innovation, expand its global footprint, and create value for its shareholders.

Bajaj Auto , one of India's leading two-wheeler and three-wheeler manufacturers, is facing a significant challenge that could impact its production output. The company is planning to reduce production due to a shortage of rare earth magnets, a crucial component in automotive manufacturing.

Global Supply Chain Disruption

The shortage of rare earth magnets is directly linked to China's recent restrictions on the export of these critical materials. This move by China, a major global supplier of rare earth elements, has sent ripples through various industries worldwide, with the automotive sector being particularly affected.

Impact on Bajaj Auto

The production cut announcement by Bajaj Auto underscores the far-reaching consequences of this supply chain disruption. Rare earth magnets are essential components in various parts of vehicles, including:

• Electric motors
• Sensors
• Alternators
• Speakers

The shortage of these magnets could potentially affect the production of multiple vehicle models in Bajaj Auto's lineup.

Broader Implications

This situation highlights several key issues in the global manufacturing landscape:

1. Supply Chain Vulnerability: The heavy reliance on a single country for critical materials exposes manufacturers to significant risks.

2. Geopolitical Influences: Export controls and trade policies can have substantial impacts on global industries.

3. Need for Alternatives: This shortage may accelerate research into alternative materials or push for the development of rare earth mining and processing capabilities in other countries.

Looking Ahead

While Bajaj Auto has not yet disclosed the extent of the production cut or which specific models might be affected, this development is likely to be closely watched by investors, industry analysts, and other automotive manufacturers. The company may need to explore alternative suppliers or work on strategies to mitigate the impact of this shortage in the coming months.

As the situation evolves, it will be crucial to monitor how Bajaj Auto and other manufacturers in the automotive industry adapt to these supply chain challenges and what long-term strategies they implement to ensure a stable supply of critical components.