Israeli investment in Bharat Forge defence arm cleared

In July this year, 26% FDI in defence production was approved

Clearing the way for one of the major foreign investments in the defence sector, the Foreign Investment Promotion Board (FIPB) has approved Bharat Forge’s proposal to sell 26 per cent equity stake in its defence venture to Elbit Systems Land and C41 Ltd, an Israeli company.

In the last 13 years, the defence sector has recorded foreign investment of about just $5 million. In 2001, the government had opened the sector to private investment, with a foreign direct investment cap of 26 per cent.

Bharat Forge would continue to hold 74 per cent equity in BF Elbit Advanced Systems, its defence subsidiary set up in August 2012. BF Elbit Advanced Systems would develop, assemble and manufacture defence systems, particularly artillery guns, mortar gun systems and ammunition. It would provide supplies to the Ministry of Defence or other such entities for defence, internal security, homeland security and other such purposes.

NUTS & BOLTS

• Bharat Forge is a global forging conglomerate with capacity of 750,000 tonnes per annum
• Baba Kalyani-promoted company is a defence supplier for over three decades
• BF Elbit to be a 74% venture with Israeli Elbit Systems Land and C41
• Elbit to bring in technology and system integration capabilities
• Bharat Forge to get acquire design, engineering, manufacturing, testing and validation expertise

The decision to allow the sale of equity stake was taken at an FIPB meeting chaired by Economic Affairs Secretary Arvind Mayaram yesterday, said a person privy to the development.

A company spokesperson declined to comment, citing the sensitive nature of the investment.

The strategic cooperation between Elbit and Bharat Forge would address Indian defence requirements through products customised for Indian conditions, as well as armoured vehicle upgrades, Bharat Forge Chairman and Managing Director Baba Kalyani had said in February.

Currently, BF Elbit has paid-up equity of Rs 1 lakh. The company, yet to begin operations, is expected to employ about 2,000 people, said the source. Netanya-based Elbit Systems Land and C41 Limited, a wholly-owned subsidiary of Elbit Systems, has revenue of $1.2 billion and specialises in land-based systems and products for military vehicles. Its land vehicles and platform solutions cover the entire combat vehicle spectrum. The company also develops and supplies a range of howitzers and artillery field guns.

Bharat Forge has been in the domestic defence business for about 35 years. It has manufactured and supplied over a million forged and fully machined artillery shells and has manufactured fully-built 122-mm grad artillery rockets to Bharat Dynamics. With the addition of the BF Elbit production facility, the group would be able to manufacture artillery systems, including naval guns, and upgrade armoured systems, including change of barrels and ordnance, and manufacture various ammunition shells.

In July this year, the government allowed more than 26 per cent FDI in defence production. Under the changed policy, 26 per cent FDI will continue to be approved by FIPB. Anything above that and involving what the government defines as “state-of-the-art” technology will need to be approved by the Cabinet Committee on Security (CCS).