NEW DELHI — The takeover of Pipavav Defence and Offshore Engineering by Reliance Infrastructure represented the first such acquisition in India’s defense arena, but analysts wonder if the new ownership will fare any better dealing with the Defence Ministry’s bureaucracy.
Anil Ambani, owner of Reliance, announced on March 4 the company had purchased an 18 percent equity stake in Pipavav for US $136.5 million and also assumed management control.
The takeover of Pipavav Defence, which has the only Indian dry dock capable of building aircraft carriers, represents both despair and hope in the defense sector, said Nitin Mehta, a New Delhi-based defense analyst.
“With management control of Pipavav Defence, Reliance Infrastructure gets a quick entry into the defense market, where getting licenses and setting up infrastructure is difficult,” Mehta said. “However, Pipavav, after getting the first license to make warships, is submerged in debt and the management is fatigued with the slow pace of growth of private companies in the defense sector.
“The acquisition of Pipavav makes an entry into the defense space by a leading industrial group, but the pain of getting business from the Indian Ministry of Defence because of the lengthy bureaucratic procurement process can fatigue anybody. Only time will tell if the new owners are able to tap the big ticket defense sector,” he added.