In the biggest deal in the defence sector, billionaire Anil Ambani-led Reliance Infrastructure today announced acquisition of controlling stake in Pipavav Defence and Offshore Engineering for up to Rs 2,082.3 crore.
Reliance Infra will buy 18 per cent stake from promoter group led by Nikhil Gandhi at Rs 63 per share, aggregating to Rs 819 crore.
It will make an open offer for an additional 26 per cent shares at Rs 66 apiece, totalling Rs 1,263.3 crore.
In case the open offer fails, Reliance Infra will acquire additional shares from promoters to ensure its shareholding is not less than 25.10 per cent.
Promoters at present hold 44.50 per cent stake in Pipavav Defence, which is reportedly is looking at debt recast.
The Anil Ambani Group, which has announced foray into defence manufacturing, will buy 13 crore equity shares from promoters together with sole management control.
The acquisition would be done by Reliance Infrastructure, together with its wholly owned subsidiary Reliance Defence Systems Pvt Ltd.
Pursuant to the buyout resulting in a change in management and control of the Pipavav, Reliance Defence Systems Ltd, a subsidiary of Reliance Infrastructure, made an open offer to acquire 26 per cent from public shareholders of the company at Rs 66 per share.
“As per the agreement with the promoters, Reliance will also acquire from them such number of additional equity shares of the company, at the same price of Rs 63 per share, as is required to ensure that Reliance’s shareholding is not less than 25.10 per cent of the target company, after taking into account the acquisitions made under the open offer,” a company statement said.
Post the transaction, the existing promoters of Pipavav Defence will continue to retain a minority stake in the company, together with two non-executive Board seats.
“The transaction is subject to certain conditions precedent and various statutory approvals,” the statement said, adding Ambani will become Chairman of Pipavav Defence.
Commenting on the transaction, Ambani said, “This is a unique opportunity for Reliance Group to participate in Prime Minister Narendra Modi’s ‘Make in India’ programme for the high growth defence sector.”
“We are confident that our strategic investment will create long term value for all stakeholders,” he said.
Nikhil Gandhi, the founder promoter and Chairman of Pipavav Defence, said: “This transaction is an endorsement of the vision we set out to achieve almost 10 years ago. Aside from the commonality of vision, we share a philosophy of long-term value creation for all stakeholders.”
Shares of Reliance Infra today 4 per cent down at Rs 474.90 on BSE.
Pipavav shares ended at Rs 76.50, up 3.40 per cent on BSE.
Gandhi said he looks forward to supporting Reliance to realise the goal of creating India’s foremost defence company.
Bhavesh Gandhi, co-promoter and Vice Chairman of Pipavav Defence, stated: “I expect Reliance’s strategic investment to accelerate our progress towards meeting the needs of our nation, and creating sustainable social value in the community we operate in.”
Reliance Infrastructure is amongst the largest infrastructure companies in India, developing projects through various Special Purpose Vehicles (SPVs) in several high growth sectors like road, metro rail and cement. It is also a leading power utility.
Pipavav Defence is India’s first world class integrated defence production, ship building and offshore infrastructure company. It is the country’s first private sector company to get the licence and contracts to build frontline warships for the Indian Navy.
Pipavav Defence has one of the world’s largest infrastructure facilities – spread over 841 acres of land on on the Gujarat coast and has India’s largest, and one of the world’s largest dry docks, measuring 662 meters in length and 65 meters in width.
Reliance Infrastructure together with Reliance Defence Systems Pvt Ltd will make an open offer to buy up to 19.14 crore equity shares, or 26 per cent of Pipavav Defence and Offshore Engineering Company.
Pipavav, which had a net debt of Rs 5,480.8 crore as of March 2014, posted an operating profit of Rs 778.7 crore in FY14, leaving it with a net debt to EBITA ratio of 7.
In October-December, it reported a net loss of Rs 70.2 crore on the back of Rs 252 crore in revenues. Between FY11 and FY14, its interest costs rose nearly four fold — from Rs 119 crore to Rs 465.2 crore.
Last year, the government had increased FDI cap in the defence projects to 49 per cent to boost investment inflows in defence manufacturing.