Anil Ambani will take over as the chairman of Pipavav Defence with full management control
Anil Ambani’s Reliance Defence Systems alongwith Reliance Infrastructure is all set to make a big bang entry into the defence sector by acquiring Pipavav Defence, one of India’s biggest private sector shipyard based in Pipavav in Gujarat in an all-cash deal.
According to an official press release of the Reliance Group, Anil Ambani will take over as the chairman of Pipavav Defence with full management control.
Reliance Infrastructure will first invest Rs 819 crore (Rs 8.19 billion) to pick up 17.66 per cent stake in the company at a price of Rs 63 from the promoters and then launch an open offer to buy an additional 26 per cent stake at Rs 66 a share – costing around Rs 1,266 crore (Rs 12.66 billion). The Anil Ambani group has pipped a number of suitors including the Munjals of the Hero group and M&M to buy the company.
"We needed a partner who was committed to the defence business. This sector will turn out to be one of the biggest opportunities for the Indian companies. The Indian government under the PM Narendra Modi is keen that Indian companies bag defence orders and instead of importing we should be exporting defence equipment. The Anil Ambani group is vibrant group and is ready for a partnership with us," said Nikhil Gandhi, chairman of Pipavav Defence, and one of the pioneers in greenfield infrastructure projects,
The Ambani company will spend an additional Rs 345 crore (Rs 3.45 billion) to buy another tranche of 7.44 per cent stake in the company, so as to take its stake to 25.10 per cent and, in case, there is a lukewarm response to the open offer. Post the transactions, the Gandhi family stake will come down to 24.6 per cent from the present 44.5 per cent stake. The Gandhis will also get two non-executive board seats.
The Pipavav Defence stock closed at Rs 76.50 on Wednesday. With the slowdown in the economy, the company was facing liquidity problems in managing its Rs 7,000 crore (Rs 70 billion) debt. The company had approached the banks to recast its loans. Gandhi said the CDR of the company remains on track."We are working with the banks to bring our debt under control –.the CDR process was irrespective of the stake sale," said he.
With the acquisition, Reliance Infrastructure joins a growing list of Indian companies which are getting into the defence sector in a big way with the Modi Government planning to give more orders to the Indian companies under the Make-in-India policy. The Modi government has also allowed 49 per cent foreign direct investment in defence companies.
“This is a unique opportunity for Reliance Group to participate in PM Modi’s “Make in India” programme for the high growth defence sector. We are confident that our strategic investment will create long term value for all stakeholders,” said Ambani.
“This transaction is an endorsement of the vision we set out to achieve almost 10 years ago. Aside from the commonality of vision, we share a philosophy of long-term value creation for all stakeholders. I look forward to supporting Reliance to realize the goal of creating India’s foremost defence company, with an emphasis on the 'Make in India' programme initiated by the prime minister of India,” said Gandhi. The Indian government will give defence orders worth $250 billion in the next five years - thus opening up a big opportunity to the Indian companies.
Gandhi said creation of greenfield infrastructure is traumatic, tedious, complex and full of challenges. "We have clear vision and expertise to develop Greenfield projects which takes a long time and by the time it starts giving fruits, fatigue sets in. We, therefore, bring in top class Indian and global partners who creates further value on a ongoing basis. In the bargain shareholders of both the companies make significant value and it makes everyone happy so you may call it our robust business model," said Gandhi, a first generation entrepreneur, who set up India's first special economic zone in Navi Mumbai which was later sold to RIL chairman, Mukesh Ambani.
Pipavav Defence has technological tie ups with global defence companies including SAAB of Sweden, DCNS of France, Sembcrop Marine of Singapore and JSC Zvyozdochka and Rosoboron Export of Russian. The company also has an order book of Rs 12,000 crore (Rs 120 billion) but was facing mounting problems in repaying its loans and was seeking a debt restructuring from its lenders.
Pipavav Defence has one of the world's largest greenfield infrastructure facilities - spread over 841 acres of land in Gujarat with 210 acres of fully developed water front land and 250 acres developed for shipbuilding.
