The Government of India is restarting the formal process to divest itself of several troubled businesses taken over by the state-run Board of Reconstruction for Private Sector Enterprises (BRPSE).

In particular, HMT Bearings is the key business being shopped once again in the hopes of attracting private investors. Since a government-funded bailout of HMT in 2002 left it with 97% of the company's equity, multiple formal and informal efforts to find buyers for the troubled bearing manufacturer have come and gone. By 2005, India's Cabinet Committee on Economic Affairs was so frustrated with the lack of progress that it gave the BRPSE an ultimatum to find a strategic partner for HMT by the end of 2006. No investors were ever found.

The latest effort has its roots in early 2007, when additional government assurances were put in place to stabilize HMT's financial situation and hopefully attract buyers. Unfortunately, again, no serious buyers have surfaced.

In the most recent fiscal year, HMT reportedly lost Rs 70 million (USD $1.4 million).

A ministry of heavy industries official said: "We plan to divest around 74% stake in HMT Bearings. We have invited expressions of interest from various players. The ed partner will have the full management control. We may also sign a joint venture agreement in the same regard. The whole process should be completed within a span of four to five months."

HMT Bearings manufactures ball bearings, tapered roller bearings, and cylindrical roller bearings in sizes from 20mm to 260mm OD. The division had fiscal 2006 sales in the neighborhood of Rs 400 million to Rs 450 million, ($9 million to $10 million) but is cash flow starved and in need of operating capital, which the government has been providing.

From the most recent reliable financial period, 2003-2004, HMT Bearings sales were 75% to the Indian OEM tractor and commercial vehicle market, and the remainder to aftermarket replacement sales and government-guaranteed Indian rail bearing contracts.

Founded in 1964 as Nippon Precision Bearings Ltd., the company was acquired in 1980 by Hindustan Machine Tools, a massive government-run manufacturing conglomerate. Renamed HMT Bearings, it began to collapse in the late 1990's along with the rest of HMT -- buried in a mountain of debt amid a myriad of poorly-run state-supported business operations.

HMT Bearings began suffering a liquidity crisis in 1999-2000. It worsened 2002 and 2003, primarily due to a massive inventory buildup and accumulation of uncollected receivables.

In mid-2002, the government and HMT Group explored shutting down HMT Bearings, taking the losses and laying off all employees. But that plan was rejected, out of concern for the impact on employment and high pension costs, and in the face of intense pressure by the Center of India Trade Union in Hyderabad. Rather than shut down HMT Bearings, government-funded bailouts were instituted; debt was converted to equity, wiping out shareholders but eliminating the overwhelming interest expense.

The first government effort to divest HMT came in 2002, via the BRPSE's instructions to find a strategic investor to buy out the government's 97% ownership. Seeking an Expression of Interest from qualified buyers, an operating background for HMT was developed, along with bid guidelines. That package expired in 2002 after only minimal interest from private industry.

Government holdings in HMT Bearings currently stand at 97.25%. Koyo (JTEKT; Japan) owns the other 2.75%.

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