Reliance Infra buys Pipavav Defence in all-cash deal

Anil Ambani will take over as the chairman of Pipavav Defence with full management control

Anil Ambani’s Reliance Defence Systems, along with Reliance Infrastructure, is set to make a big-bang entry into the defence sector by acquiring Pipavav Defence, a private shipyard based in Pipavav in Gujarat, in an all-cash deal. According to a Reliance Group release, Anil Ambani will take over as chairman of Pipavav Defence, with full management control.

Reliance Infrastructure will first invest Rs 819 crore for 17.66 per cent stake at Rs 63 a share from the promoters and, subsequently, launch an open offer for an additional 26 per cent stake at Rs 66 a share (Rs 1,266 crore).

In clinching the deal, Reliance Group has pipped a number of other suitors, including the Munjals of the Hero group, and Mahindra & Mahindra.

COURSE OF ACTION

• Reliance Infrastructure will first invest Rs 819 crore for 17.66% stake in the company, at Rs 63 a share
• Subsequentl, it will launch an open offer for an additional 26% at Rs 66 a share (Rs  1,266 crore)
• In case of a lukewarm response to the open offer, Reliance Group will spend an additional Rs 345 crore to buy another 7.44% stake

“We needed a partner who was committed to the defence business. This sector will turn out to be one of the biggest opportunities for Indian companies. Under Prime Minister Narendra Modi, the government is keen that Indian companies bag defence orders. Instead of importing, we should export defence equipment. The Anil Ambani group is a vibrant group; it is ready for a partnership with us,” said Nikhil Gandhi, chairman of Pipavav Defence.

In case the response to its open offer is lukewarm, as the current market price is higher than the open offer price, Reliance Group will spend an additional Rs 345 crore to buy 7.44 per cent more in the company to take its stake to 25.1 per cent. After the transactions, the Gandhi family’s stake will fall to 24.6 per cent from the current 44.5 per cent. The Gandhis will get two non-executive board seats.

On Wednesday, the Pipavav Defence stock closed at Rs 76.50. With the slowdown in the economy, the company has been facing hurdles in managing its debt of Rs 7,000 crore. Earlier, the company had approached banks to recast its loans.    

“We are working with banks to bring our debt under control. The CDR (corporate debt restructuring process was irrespective of the stake sale,” Gandhi said.

With the acquisition, Reliance Infrastructure joins a growing list of Indian companies entering the defence sector in a big way. The National Democratic Alliance government plans to give defence orders worth $250 billion through the next five years, a big opportunity for these 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 our strategic investment will create long-term value for all stakeholders,” Ambani said.

“This transaction is an endorsement of the vision we set out to achieve about 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 realise the goal of creating India’s foremost defence company, with an emphasis on the Make in India programme initiated by the prime minister,” Gandhi said.

“We have clear vision and expertise to develop greenfield projects, which take a long time and by the time it starts showing results, fatigue sets in. We, therefore, bring in top-class Indian and global partners who create further value on an ongoing basis. In the bargain, shareholders of both the companies make significant value,” said Gandhi, who had set up India’s first special economic zone in Navi Mumbai, which was later sold to Reliance Industries Chairman Mukesh Ambani.

Pipavav Defence has technology tie-ups with global defence companies, including SAAB of Sweden, DCNS of France, Sembcorp Marine of Singapore and JSC Zvyozdochka and Rosoboron Export of Russia. The company has an order book of Rs 12,000 crore.

The company has one of the world’s largest greenfield infrastructure facilities, spread across 841 acres in Gujarat, with 210 acres of fully developed water-front land and 250 acres developed for shipbuilding.