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By Arif Sharif
NEW DELHI, July 25 (Reuters) - India's northern Punjab state said on Friday it had approved the sale of its controlling stake in Punjab Tractors Ltd to U.K.-based investment institution Commonwealth Development Corporation.
The state government, which held an indirect 23.49 percent in the country's third-biggest tractor maker, had invited bids for the strategic sale of its holding last December.
A Punjab government official told Reuters on the phone from state capital, Chandigarh, the cabinet had approved the stake sale in the tractor firm at 153 rupees a share.
That price, a discount of 3.4 percent to Punjab Tractors' closing price of 158.4 rupees on Friday, will raise 2.18 billion rupees ($47.4 million) for the Punjab government.
"CDC is expected to be a stable, passive investor and unlikely to make short-term changes in top management," Pramod Amthe, an analyst at Cholamandalam Securities told Reuters.
"The current management has a good rapport with farmers and this investment will give them an opportunity to improve performance over the medium term," he added.
Tractor sales in India, the world's biggest market by unit sales, dived 25 percent in the past fiscal year to March as the country's worst monsoon in 15 years hurt farm incomes.
Punjab Tractors' net profit in the past year to March 2003 dropped 58 percent to 423 million rupees as tractor sales shrank 40 percent on year.
CDC was the only bidder for Punjab Tractors after several domestic and foreign firms initially expressed interest.
Vini Mahajan, disinvestment director in the Punjab government, told Reuters it was the first time a foreign company had won a bid in the government's privatisation programme in India.
The CDC could not be reached for comment.
Punjab Tractors , which has the capacity to make 60,000 tractors a year, sold 24,200 tractors in 2002/03, accounting for 15 percent of volume sales in the sector, data from an industry association shows.
It also owns 33 percent of Swaraj Mazda Ltd, which makes light trucks and buses with Mazda's technology, and 29 percent of Swaraj Engines Ltd , which makes diesel engines in collaboration with Kirloskar Oil Engines Ltd .
Mahajan said CDC had informed the state government that they were exempt from making an open offer for a further 20 percent stake in the firm as is mandated by Indian takeover regulations but would carry out further legal scrutiny.
Amthe, who has an underperformer rating on the stock, said there were no new triggers for the stock in the absence of an open offer. ($1 = 46.13 rupees)