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Exclusive: Saudi Arabia makes $1 billion bid for partnership with South Africa defence group Denel

Reuters  |  JOHANNESBURG 

By and Alexander Winning

JOHANNESBURG (Reuters) - has made a $1 billion bid for a broad partnership with South African state-owned defence group that would include acquisition of a minority stake in a joint venture with Germany's Rheinmetall, a source familiar with the offer said.

Currently heavily dependent on imports, Saudi Arabia, the world's third-largest defence spender, is seeking partnerships to develop its own domestic defence industry with the goal of localising half of its military spending by 2030.

(SAMI), the kingdom's state defence company, told last month that it was in discussions with all major South African firms and aimed to conclude the first deals by the end of this year.

According to the source, who asked not to be named due to the sensitivity of the talks, was targeting Denel's 49 percent stake in Rheinmetall Munition (RDM).

RDM is a South African-based joint venture formed in 2008 between and Rheinmetall Waffe Munition GmbH, which holds the remaining 51 percent stake. It specialises in the development, design and manufacture of medium and large-calibre ammunition including artillery shells.

A Rheinmetall declined to comment. The is currently reviewing all arms sales to after the killing of in the

Industry sources said RDM operates independently and is subject to South African law, which means exports from the unit are not subject to oversight. The sources said they did not expect that a change in the ownership of the venture would require a review.

Under the Saudi offer, SAMI would also finance research and development in other Denel divisions including Denel Dynamics, which develops and produces tactical missiles and precision guided weapons.

Denel and SAMI would share intellectual property and under a new joint venture would target defence export markets in the and

Finally, Saudi Arabia - already a top Denel customer for military vehicles, artillery munitions and - would purchase a certain amount of the group's production. The Saudis expect an answer from the South African authorities by the end of December.

"Saudi Arabia has made a unique business proposition to the As our discussions are not finalised yet we cannot provide any comment," SAMI wrote in response to Reuters' questions.

"RIPE FOR PARTNERSHIPS"

South African last week said Denel was "ripe for joint-venture partnerships". But he added that the government had not yet weighed the Saudi bid or proposals from what he said were a number of other suitors looking to with Denel.

A Denel would not comment on any specific bid, saying that such negotiations take place on a state-to-state basis.

Ramaphosa's said the would only make a decision on the Saudi offer to with Denel once it was discussed by cabinet.

"No decision has been made yet," Diko told

The source with knowledge of the Saudi bid told that Rheinmetall informally approached Denel's board last year aiming to deepen its collaboration with the company.

The source said Rheinmetall had, like Saudi Arabia, expressed interest in acquiring Denel's minority stake in RDM and other Denel divisions but was rebuffed.

Rheinmetall declined to comment.

Denel is grappling with an acute liquidity crunch and is struggling to pay salaries and deliver on roughly 18 billion rand ($1.29 billion) of outstanding orders.

Following seven years of modest profits, the company said last week it had made an operating loss of 1.7 billion rand in the 2017/18 financial year.

Sector observers say finding an equity is essential to Denel's survival.

However, the interest in the company from Saudi Arabia, which is accused of committing abuses in the war in and has admitted responsibility for Khashoggi's death, has spawned public debate in

South African said last month human rights would be considered in any deliberations over a potential Saudi deal.

($1 = 13.9020 rand)

(Additional reporting by Andrea Shalal in Berlin; Editing by Giles Elgood)

(This story has not been edited by Business Standard staff and is auto-generated from a syndicated feed.)

First Published: Thu, November 08 2018. 15:29 IST
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