Indian missiles, copters, subs - Anil Ambani's ambitious defense plan

Swan Defence and Heavy Industries

30/05/2016 06:41

By Paritosh Bansal, Sanjeev Miglani and Promit Mukherjee 
    NEW DELHI/MUMBAI, May 30 (Reuters) - Anil Ambani's Reliance 
Group has never made a military helicopter, missile system or 
submarine in its history but that isn't stopping the Indian 
tycoon from seeking to win contracts to manufacture all of that 
military hardware and more. 
    Known for taking some ambitious bets over the past decade, 
some of which have failed to deliver, Ambani's plans to turn 
Reliance into a major defense company may be one of his boldest 
yet. It has already bid for 840 billion Indian rupees ($12.5  
billion) in Indian government contracts, senior executives said, 
though it hasn't yet won any of those. 
    The success of the strategy will depend partly on whether he 
can persuade government officials and international partners 
that he can build sophisticated equipment and partly on whether 
Prime Minister Narendra Modi can get India's notoriously slow 
procurement process to work. 
    Modi has made defense a big part of his "Make in India" 
programme. As part of any defence contract, he is demanding 
foreign companies tie up with a local partner, transfer 
technology and move some manufacturing to India. 
    At stake is $250 billion in defense contracts the government 
is expected to award over the next 10 years as it looks to 
upgrade the military's aging equipment.  
    "We hope to have a significant share of this pie," said R K 
Dhingra, chief executive of Reliance Defence. He predicted the 
company will "emerge as a key player in the defence sector over 
the next few years." 
    Reliance's ambition is greeted with scepticism by many in 
the defense world.       
    An Indian military official involved in defense procurement 
said Reliance is overreaching in wanting to make everything from 
ships to planes. Some rivals and potential partners for the 
contracts said Reliance will struggle to master the manufacture 
of such a wide range of sophisticated military hardware.  
    "There is no quick money in this branch," said Jan 
Widerstrom, head of Saab India Technologies, a unit of Saab AB 
 SAABb.ST . "It requires a lot of experience, high tech culture, 
investments and a long-term business plan." 
    Still, Saab and Reliance are working together in developing 
the next generation Combat Management System for the Indian Navy 
and Coast Guard.  
    Recently, Reliance's lack of experience and questions about 
its ability to handle sensitive technology and intellectual 
property counted against it in its bid to partner with the 
Russians to build 200 Kamov helicopters, said a Russian diplomat 
in New Delhi, who declined to be identified in this story 
because they weren't speaking in an official capacity. 
    The contract, estimated to be worth a little over $900 
million went instead to Indian state-controlled company 
Hindustan Aeronautics Ltd  HIAE.NS . 
    Ambani should identify core areas and concentrate on them 
rather than "be an inch deep and a mile wide," said Nitin 
Gokhale, founder of defence website Bharat Shakti. 
     
    RELIANCE GROUP     
    The Reliance conglomerate split into two in 2005 after a 
bitter feud between Anil Ambani and his older brother, Mukesh. 
The latter got the flagship Reliance Industries, with interests 
in petrochemicals, oil and gas exploration, refining and 
textiles. 
    Anil got telecoms, power, entertainment and financial 
services businesses. But some of his businesses struggled, 
especially an ill-timed foray into infrastructure, and debt 
piled up.  
    Its Reliance Infrastructure arm, which includes the defense 
operations, aims to be debt free in the current financial year 
ending March 2017, according to Lalit Jalan, who is acting CEO 
of the unit.  
    To get there it plans to sell assets, including road 
projects and a stake in a power distribution company for about 
180 billion rupees, according to another senior Reliance 
executive. 
    Ambani entered the defence sector last year, when he took a 
controlling stake in a company that made warships and energy 
exploration vessels, in Modi's home state of Gujarat, called 
Pipavav Defence and Offshore Engineering Co Ltd, for about 20 
billion Indian rupees.  
    That became Reliance Defence and Engineering Ltd  RELD.NS . 
Since then, Reliance has bought hundreds of acres of additional 
land to build an aerospace facility and another shipyard in 
other parts of the country.  
    It has also signed more than half a dozen joint venture 
agreements with foreign companies, including one with Rafael 
Advanced Defence Systems of Israel, to bid for Indian government 
contracts as they come up.  
    An Israeli defense industry source said for Rafael the idea 
is that if it wins tenders, Reliance will produce some 
components for missiles and other systems.  
      
    BUILDING EXPERIENCE 
    Ambani has said that lack of experience is being held 
against his company. 
    "Despite a committed reformist mindset at the top, we are 
still seeing opportunities being denied to new players on 
grounds of lack of experience," Ambani told a 'Make in India' 
summit on defence in March.  
    Reliance Defence has been building an experienced team. 
Dhingra earlier headed Lockheed Martin's India operations, and 
the company has hired a slew of senior army and navy officers 
who have executed large defence projects from conception to 
delivery, the Reliance executive said. 
    The group's experience in managing complex projects in 
India, including building roads and power plants should help it, 
the executive said. For design, technology and complicated 
weaponry, Reliance would have a foreign partner, he noted.  
    Reliance expects to spend up to 20 billion rupees over the 
next three years in upgrading facilities as it gets business, 
keeping its outlay low as it waits for contracts, the executive 
said.     
    Thanks to its Pipavav shipyard, Reliance expects the naval 
part of its business to be the first to take off, he said.     
    It plans to bid for a $7.5 billion submarine contract that 
the government is expected to give out to replace the navy's 
ageing and accident-prone fleet and narrow the gap with rival 
China's rapidly modernizing fleet.  
    Ambani also has plans to bid for contracts in the future to 
make nuclear-powered submarines.  
     
($1 = 67.3 Indian rupees) 
 
 (Additional reporting by Douglas Busvine and Tommy Wilkes in 
NEW DELHI; Gleb Bryanski in MOSCOW; Dan Williams in TEL AVIV; 
and Pavel Polityuk in KIEV; Editing by Martin Howell) 
 ((paritosh.bansal@thomsonreuters.com; +91 11 4954 8025; Reuters 
Messaging: paritosh.bansal.thomsonreuters.com@reuters.net)) 
 
Keywords: RELIANCE DEFENCE/