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BAE Pulls Out of Joint Venture With India’s Mahindra

Feb. 20, 2013 - 08:37AM   |  
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NEW DELHI — In a setback to joint ventures in India’s defense sector, the U.K.’s BAE Systems and domestic automobile company Mahindra & Mahindra ended their equity partnership, formed in 2009, called Mahindra Defence Systems.

BAE will forgo its share of 26 percent in Mahindra Defence Systems; no details are known on the purchase price of BAE’s share.

While an executive of Mahindra Defence Systems said its acquisition of BAE’s 26 percent stake will not end their relationship, sources in the Indian company said BAE is leaving the joint venture because it has decided the future defense market for its products was not as bright as it had earlier calculated.

In a joint statement, BAE Systems and Mahindra Defence Systems said, “This decision is a reflection of the shareholders’ belief that they can best meet emerging customer requirements and address the opportunities in this dynamic market with a flexible, tailored approach that was not easily facilitated by the structure of the existing joint-venture entity.”

BAE officials referred requests for further information to the statement.

The British company’s 26 percent equity in Mahindra Defence Systems is the maximum under Indian law that a foreign company can invest in a joint venture in India’s defense sector.

BAE invested $5.83 million of the $21.5 million invested in the joint venture.

Headquartered in New Delhi with manufacturing facilities in neighboring Faridabad, Mahindra Defence Systems manufactures specialized military vehicles and is also developing a mine-protected vehicle for use by the Indian Army.

The Army plans to buy more than 5,000 light strike military vehicles over the next five years. Requirements include four-wheel drive, high power-to-weight ratios, travel speeds of 80 kilometers per hour and ability to carry rocket launchers and GPS navigation systems.

Currently, the Army uses about 2,000 Russian BMP-1 and BMP-2 multipurpose armored vehicles.

Mahindra Defence Systems sources said the joint venture was banking on business from the homemade Future Infantry Combat Vehicle project and artillery projects, including 155mm/52-caliber guns, but refused to give details on their assessment on these futuristic projects.

No BAE executive would offer a reason for the pullout beyond what was in the joint statement.

Setback on JV With Israel

In April, Mahindra Defence Systems received a setback when its proposal to forge a joint venture with Israel’s Rafael was denied by India’s Foreign Investment Promotion Board. While no official reason was given, Indian Ministry of Defence (MoD) sources told Defense News the proposal was shot down for security considerations.

Mahindra Defence Systems and Rafael had proposed setting up development and production facilities to make anti-torpedo defense systems in India. Khutub Hai, retired Indian Army brigadier and current CEO of Mahindra Defence Systems, expressed frustration at the rejection of the joint venture.

“Both Mahindra and Rafael are surprised at the decision as both are reputable companies which have extensive engagement with the government of India on projects related to defense and homeland security,” Hai said.

BAE’s decision to pull out of the Mahindra Defence Systems joint venture will create doubts about the Indian defense market, said Nitin Mehta, defense analyst.

An executive of the Federation of Indian Chambers of Commerce and Industry, the lobbying agency for Indian industries, said the pullout is bad news for the private-sector defense market, which is still in its infancy.

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