Stockholm-listed Swedish defence company Saab has signed a memorandum of understanding (MOU) for its strategic investment in Pipavav Defence & Engineering Offshore. The companies have also signed a technical partnership agreement as part of their ongoing cooperation on projects.
The MOU covers Saab’s investment of roughly 250 million kronor (US$38 million) in Pipavav Defence.
“Saab has a long-term strategy to grow in India and this new agreement is one important step in that direction,” says Håkan Buskhe, the president and CEO of Saab.
Earlier, the two companies formed the Combat System Engineering group, which examines naval combat systems design and architecture. The companies are also exploring next generation combat management systems for the Indian navy and coast guard.
Saab’s defence business deals with products, services and solutions for both military defence and civil security.
Pipavav Defence, which is listed on the Bombay Stock Exchange, concentrates on defence, and offshore and heavy engineering. It recently signed a joint venture agreement with Indian state-owned shipyard Mazagaon Dock to construct surface warships.
Krishnamurthy & Co, led by managing partner Naina Krishnamurthy, advised Pipavav Defence on the deal. She was assisted by partner Praveen Raju and associate partners Sanket Sethia and Priti Deshpande.
Seth Dua & Associates advised Saab. The team consisted of senior partner Sunil Seth, partner Subodh Sadana, senior associate Sharad Tyagi and associate Mehak Oberoi.
Foreign direct investment in India’s defence sector is still capped at 26%, despite pressure from foreign investors for a 49% limit. “Some have even demanded a majority stake, especially when critical technologies are required to be licensed from the foreign parties’ side,” Seth told India Business Law Journal. “The Indian government’s reluctance to lift caps has definitely upset foreign players.”
In addition, foreign investors have expressed concerns regarding their offset obligations in the defence sector. In response, India’s Ministry of Defence issued a revised offset policy, effective from 1 August, which takes into account some of the views submitted by original equipment manufacturers, incorporating some key demands and expanding the offset eligibility. “With the new policy in force, foreign players would be comparatively happier … though many of them still think it is not yet perfect,” said Seth.
