The proposal was cleared in a meeting of the Cabinet Committee on Economic Affairs (CCEA) held here today.
"The CCEA today approved the proposal of Hero Investments Pvt Ltd to receive FDI amounting to Rs 4,500 crore approximately in the investing company from Bain Capital and Lathe Investment Pvt Ltd," an official statement said.
The proposal was recommended to the CCEA by the Foreign Investment Promotion Board in February, 2011.
The Hero Group had earlier stated that the two private equity firms, BC India Investors II, a part of Bain Capital, and Lathe Investment Pvt Ltd, will together pick up a 29 per cent stake in HIPL for Rs 3,650 crore.
HIPL is one of the main shareholders in the country's largest two-wheeler maker, Hero Honda. It held a 17.33 per cent stake in the company as of Dec 31, 2010.
In Dec last year, the promoters of HIPL, the B M Munjal family, had agreed to buyout the entire 26 per cent stake of Japan''s Honda in Hero Honda for Rs 3,841.83 crore.
After buying out Honda from Hero Honda, HIPL will own 43.33 per cent of India''s largest two-wheeler maker.
The Hero Group had earlier this month signed definitive agreements with the PE firms -- BC India Private Investors II, an affiliate of Bain Capital LLC, and Lathe Investment Pvt Ltd, a wholly-owned subsidiary of state-run Singapore Investment Corporation (Ventures) Pvt Ltd -- for the stake sale in HIPL.
The group said the funds raised from the PE firms will be used to retire a significant portion of the debt that was raised by HIPL recently for financing the acquisition of Honda Motor Company's stake in Hero Honda.