Reliance Infrastructure To Buy Pipavav Defence In India's Largest Defence Deal

04/03/2015 8:38 PM IST | Updated 15/07/2016 8:25 AM IST
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NEW DELHI, INDIA - NOVEMBER 23: ADAG chairman Anil Ambani participates in Airtel Delhi Half Marathon 2014 on November 23, 2014 in New Delhi, India. (Photo by Sanjeev Verma/Hindustan Times via Getty Images)

Reliance Infrastructure, controlled by billionnaire Anil Ambani, said today it will get sole management control of Pipavav Defence and Offshore Engineering Co., by acquiring a 18 percent stake for Rs819 crore. The deal will give Reliance more firepower to bid for upcoming defence deals in India, the world's biggest importer of defence equipment.

“This is a unique opportunity for Reliance Group to participate in Prime Minister Mr. Narendra Modi’s “Make in India” programme for the high growth defence sector,” Ambani said in a statement. Pipavav Defence is one of India’s biggest private sector shipyards based in Gujarat, and is the country’s first private sector company to get contracts to build warships for the Indian Navy.

Reliance Defence Systems, a subsidiary of Reliance Infrastructure, will acquire 130 million shares in Pipavav Defence at 63 rupees a share. It has also issued a public announcement for a mandatory offer to buy 26 percent shares from shareholders of the company at Rs66 a share, which will cost about Rs1,266 crore. This step was required under Indian regulations because of change in management. If the open offer fails, Reliance will spend Rs345 crore to buy an extra 7.44 percent stake in the company, so as to take its stake to 25.10 percent. All taken together, the deal will be worth up to Rs2,082 crore, the largest acquisition in India's defence sector.

The deal represents a 17.6 percent discount to Pipavav Defence's closing price on Wednesday.

In February, it was speculated that Mahindra & Mahindra, one of India's largest diversified conglomerates, was close to buying a majority stake in Pipavav. The Hero Group was also in the race, according to reports.

"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 Pipavav Defence founder and chairman Nikhil Gandhi in a statement. Prior to this deal, Pipavav was struggling to repay Rs7,500 worth of loans and was in talks with its lenders for debt restructuring.

Prime Minister Narendra Modi has pushed for more indigenous manufacture of defence equipment as part of his 'Make In India' policy. His government has also allowed 49 percent foreign direct investment in defence companies. India is expected to announce defence orders worth as much as $250 billion in the next five years.

Post transaction, existing promoters of Pipavav Defence will continue to retain a minority stake in the company, together with two non-executive board seats.

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