Saudis bid to cut a deal with Denel

King­dom wants part­ner­ship de­spite be­ing re­buffed by SA ear­lier

Business Day - - FRONT PAGE - Joe Bavier and Alexan­der Win­ning

Saudi Ara­bia has made a $1bn bid for a broad part­ner­ship with state-owned de­fence 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. Saudi Ara­bia is seek­ing part­ner­ships to de­velop its own do­mes­tic de­fence in­dus­try. Page 2

Saudi Ara­bia has made a $1bn bid for a broad part­ner­ship with state-owned de­fence 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 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.

Saudi Ara­bian Mil­i­tary In­dus­tries (Sami), the king­dom’s state de­fence com­pany, told Reuters in Oc­to­ber that it was in dis­cus­sions with all ma­jor SA firms and aimed to con­clude the first deals by the end of 2018.

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

RDM is a joint ven­ture formed in 2008 be­tween Denel and Rhein­metall Waffe Mu­ni­tion GmbH, which holds the re­main­ing 51% stake. It spe­cialises in the de­vel­op­ment, de­sign and man­u­fac­ture of medium and large­cal­i­bre am­mu­ni­tion, in­clud­ing ar­tillery shells.

A Rhein­metall spokesper­son de­clined to com­ment.

The Ger­man gov­ern­ment is re­view­ing all arms sales to Saudi Ara­bia af­ter the killing of jour­nal­ist Ja­mal Khashoggi in an Is­tan­bul con­sulate.

In­dus­try sources said RDM op­er­ates in­de­pen­dently and is sub­ject to SA 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 de­fence 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 buy a cer­tain amount of the group’s pro­duc­tion.

The Saudis ex­pect an an­swer by the end of De­cem­ber.

“Saudi Ara­bia has made a unique busi­ness propo­si­tion to the SA gov­ern­ment. As our dis­cus­sions are not fi­nalised yet, we can­not pro­vide any com­ment,” Sami CEO An­dreas Sch­wer said.

Pres­i­dent Cyril Ramaphosa said last week Denel was “ripe for joint-ven­ture part­ner­ships”. But he added that the gov­ern­ment had not yet weighed the Saudi bid or pro­pos­als from 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 spokesper­son Khusela Diko said the pres­i­dent would only make a de­ci­sion on the Saudi of­fer once it was dis­cussed by the cab­i­net. “No de­ci­sion has been made yet.”

The source with knowl­edge of the Saudi bid said Rhein­metall in­for­mally ap­proached Denel’s board in 2017 to deepen its col­lab­o­ra­tion with the com­pany.

The source said Rhein­metall had, like Saudi Ara­bia, ex­pressed in­ter­est in Denel’s mi­nor­ity stake in RDM and its other 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 R18bn of out­stand­ing or­ders. Af­ter seven years of mod­est prof­its, it said last week it had made an op­er­at­ing loss of R1.7bn in the 2017/2018 fi­nan­cial year.

SAUDI ARA­BIA HAS MADE A UNIQUE BUSI­NESS PROPO­SI­TION TO THE SA GOV­ERN­MENT. BUT DIS­CUS­SIONS ARE NOT FI­NALISED YET

Cyril Ramaphosa

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