20 May 2009: Reuters
By Debarati Roy and Hemal Savai
May 5 (Bloomberg) -- Larsen & Toubro Ltd., India’s biggest engineering company, will form a defense venture with European Aeronautic Defence & Space Co. as the nation bolsters security to match increased military spending by Pakistan and China.
The venture will design, develop and make radar, military avionics, electronic warfare, and mobile systems, the partners said today in a joint statement in Mumbai. The new company, subject to Indian government approval, will have an initial investment of 1 billion rupees ($20 million) and be ready to receive contracts by early next year.
India, enhancing its military against its nuclear-armed neighbors, had earmarked as much as 1.06 trillion rupees of defense investment for the last fiscal, 10 percent more than the previous year. India’s arms purchases may triple in five years to more than $35 billion and imports may account for 70 percent of that, making it the largest arms importer after China, said the International Institute for Strategic Studies in London.
“India’s investment in security and defense is growing,” said Brahma Chellaney, a professor of strategic studies at the Centre for Policy Research Work in New Delhi. “India is one of the biggest buyers of arms.”
Larsen shares, which have risen 26 percent this year, gained as much as 4.2 percent and traded at 979.40 rupees, up 2.8 percent, as of 2:47 p.m. in Mumbai. The key Sensitive Index fell 0.4 percent.
Warships, Submarines
More funds will be invested in the venture when required, Stefan Zoller, head of the defense and security unit of European Aeronautic Defence & Space told reporters at a joint conference today in Mumbai. Larsen’s venture with EADS, as the partner is known, may generate sales of $500 million in the next five to seven years, they said today.
The companies did not disclose details of their shareholding in the venture. The Indian government limits overseas ownership in defense ventures to 26 percent.
The defense business of Mumbai-based Larsen, which includes electronic-warfare equipment and sensors, warships, submarines and high-speed boats, contributes 4 billion rupees, Chairman A.M. Naik said at the conference. The defense spending over the next three years for Larsen, which had revenue of 292 billion rupees in the last financial year, will be as much as 20 billion rupees, he said.
In February 2007, Larsen had signed an initial agreement with Boeing Co., the second-biggest U.S. defense contractor, to explore opportunities in India’s defense industry.
Boeing, Lockheed
Boeing, Lockheed Martin Corp., the Eurofighter unit of EADS and three other fighter-plane makers are in the race for an $11 billion contract to supply jets to the Indian Air Force, the largest military contest in play worldwide. India wants all but 18 of the 126 fighter jets it buys to be made in India. It also wants the winner to reinvest some of the $11 billion for developing the country’s aerospace and defense sector in a requirement known as an offset.
“EADS will make this a part of the offset program,” Chellaney said.
EADS’s two largest units by sales are Airbus SAS, the world’s biggest maker of commercial aircraft, and the defense and security division, which makes missiles, combat planes and military electronics. Eurocopter, the third-largest, said in February it bid to supply 197 helicopters to India’s armed forces, 22 attack craft and 16 helicopters to the navy.
Part of that equipment order may be placed with the Larsen venture depending on capability, Zoller said today.
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