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Pipavav Defence offers 26% stake sale

Pipavav Defence & Offshore Engineering Company, the country’s largest defence ship building company in the private sector, founded by Nikhil Gandhi, has offered to sell 26 per cent of its equity. A group of corporate majors is interested.
The talks are in an advanced stage and Pipavav’s board would soon meet to decide on the buyer, based on the offers received, a source involved with the negotiations said. The promoters were seeking close to Rs 8,400 crore, or Rs 120 a share, the sources said. The stock closed at Rs 87.85 today, up 1.9 per cent.
The investor would get up to three board seats, including the position of co-chairman, and have a say in day-to-day management. According to the deal structure, the Gandhis would first dilute stake from 45 per cent to 35 per cent; then, new shares would be issued to the strategic investor via preferential allotment. The investor would also make an open offer to the other shareholders, in line with takeover law. The exercise would cost the strategic investor about Rs 2,200 crore. The investment would be utilised to build new facility for the army projects bagged by the firm.
Many top companies, in India and abroad, are interested in Pipavav Defence due to its healthy order book and its operating facility. For them, the investment makes sense as Pipavav has already set up India’s first modular yard with the second largest dry dock in the world; it can dock ships of any size, including the largest aircraft carriers. It has also got the first licence in the country to build warships and a contract worth Rs 3,000 crore to build five gunboats.
The majors are also attracted by the Government of India’s plans to offer $250 billion (Rs 13.3 lakh crore( worth of contracts over the next five years in defence hardware. Mahindra recently announced it would get into the defence sector with Rafael. Last year, Reliance Industries had announced a joint venture with Dassault Aviation of France to get into the defence sector. This week, Larsen and Toubro inaugurated its own shipyard in Tamil Nadu.
Indian companies are going in a big way into the defence sector after the latest defence procurement policy to encourage sourcing from home.
By bringing in a strategic partner with 26 per cent stake, the Gandhis are expecting to infuse more cash into the company. Apart from its orders from the navy and from other countries, it has also signed a joint venture with Mazagon Dock Ltd to compete for Indian defence ship orders. Most shipyards in India are owned by the government and are unable to meet the huge demand of ships. Pipavav Shipyard was set up to cater to the demand.
For the Gandhis, this will not be the first exit from the businesses they have founded. Earlier, they had founded Pipavav Port, which they later sold to the multinational AP Moller-Maersk group. They were also the first to set up a special economic zone near Mumbai, which they later sold to Mukesh Ambani of Reliance Industries.
Source: Business Standard

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