Saudi Ara­bia makes $1B bid for part­ner­ship with Denel

The Daily Star (Lebanon) - - REGION -

JO­HAN­NES­BURG: Saudi Ara­bia has made a $1 bil­lion bid for a broad part­ner­ship with South African state-owned de­fense group Denel that would in­clude ac­qui­si­tion of a mi­nor­ity stake in a joint ven­ture with Ger­many’s Rhein­metall, a source fa­mil­iar with the of­fer said.

Heav­ily de­pen­dent on im­ports, Saudi Ara­bia, the world’s third­largest de­fense spender, is seek­ing part­ner­ships to de­velop its own do­mes­tic de­fense in­dus­try with the goal of lo­cal­iz­ing half of its mil­i­tary spend­ing by 2030.

Saudi Ara­bian Mil­i­tary In­dus­tries, the king­dom’s state de­fense com­pany, told Reuters last month that it was in talks 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 iden­ti­fied due to the sen­si­tiv­ity of the talks, Saudi Ara­bia was tar­get­ing Denel’s 49 per­cent stake in Rhein­metall Denel Mu­ni­tion.

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

A Rhein­metall spokesman de­clined to com­ment. The Ger­man govern­ment is cur­rently re­view­ing all arms sales to Saudi Ara­bia af­ter the killing of jour­nal­ist Ja­mal Khashoggi in the Saudi con­sulate in Is­tan­bul.

In­dus­try sources said RDM op­er­ates in­de­pen­dently and is sub­ject to South African law, which means ex­ports from the unit are not sub­ject to Ger­man govern­ment over­sight. The sources said they did not ex­pect that a change in the own­er­ship of the ven­ture would re­quire a Ger­man govern­ment 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 de­fense ex­port mar­kets in the Mid­dle East and North Africa. Fi­nally, Saudi Ara­bia – al­ready a top Denel cus­tomer for mil­i­tary ve­hi­cles, ar­tillery mu­ni­tions and radar equip­ment – 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 South African govern­ment. As our dis­cus­sions are not fi­nal­ized yet we can­not pro­vide any com­ment,” SAMI CEO An­dreas Sch­wer wrote in re­sponse to Reuters’ ques­tions.

South African Pres­i­dent Cyril Ramaphosa 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 part­ner with Denel.

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

Ramaphosa’s spokes­woman Khusela Diko said the pres­i­dent would only make a de­ci­sion on the Saudi of­fer to part­ner with Denel once it had been dis­cussed by Cabi­net. “No de­ci­sion has been made yet,” Diko told Reuters.

The source with knowl­edge of the Saudi bid told Reuters 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. –

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