BAE seeks nod for 49% in JV
UK-based BAE Systems, the world’s third-largest defence company, has sought government approval to hold 49% stake in a JV with Mahindra & Mahindra(M&M).
By TNN |
UK-based BAE Systems, the world���s third-largest defence company, has sought government approval to hold 49% stake in a JV with Mahindra & Mahindra(M&M). There is a 26% FDI cap on defence sector. Hence, if BAE is granted approval, it could set a precedent for other such ventures. According to sources, Mahindra Defence Systems and BAES have applied to the FIPB for a 51:49 JV.
This venture will initially have an equity capital of Rs 100 crore, reports Samrat Chakrabarti from New Delhi. The proposed JV will design, develop and produce land defence systems, including artillery and armoured vehicles. To begin with, the equity partners will provide the technology to the JV company. For instance, M&M will bring in its existing Defence Land Systems business, including light bullet proof vehicles and light armoured vehicles.
BAES will bring in products such as the mine protected vehicles and ultra light howitzer to the JV. While seeking a license for the JV which would entail FDI beyond the sectoral ceiling, the proposed JV partners have stated that they would like to create a more ���balanced ownership structure���. Existing FDI cap tilts the equity balance in favour of the Indian partner.
In their application to the FIPB, the firms have stated that deployment of advanced defence technologies with a constrained reward and without adequate control over the company���s technology base and management processes will be unattractive to the foreign investor. This may make the foreign partner restrict a majority of its production plans outside the country to maximise returns and mitigate risks.
The proposed JV partners have also added that in accordance with regulations the majority of the board of the firm including the CEO and COO, will be resident Indians appointed by M&M, the local part-ner. The products of the JV will be primarily sold to the Ministry of Defence and other entities under the control of the Ministry of Home Affairs and state governments.
BAES is the largest producer of land systems defence products for the global defence market. It is a known name within the Indian defence establishment as the maker and supplier of military aircrafts such as the Jaguar and the Sea Harrier, used extensively by both the Indian Air Force and Navy. In 1993, it had formed an equity JV with public sector entity Hindustan Aeronautics to provide software solutions and associated services in the area of aerospace applications. BAES holds 40% stake in the venture.
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The country opened up the defence industry for 100% domestic pri-vate sector investments and allowed FDI up to 26% in 2001. Among the private sector names who are involved in the business are Tata Group, Kirloskar Brothers, L&T, Ashok Leyland, apart from Mahin-dras. This follows the announcement by the Indian firm L&T, which is seeking a JV with a foreign partner for submarines. Last year L&T had formed a venture with EADS to tap aerospace and defence market.Download
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