Rel Infra-Pipavav together will make big defence conglomerate, says Nikhil Gandhi

Reliance Infrastructure Limited today announced the acquisition of Pipavav Defence and Offshore Engineering Company Limited, together with sole management control. Reliance Infrastructure, together with its wholly owned subsidiary Reliance Defence Systems Private Limited , has agreed to acquire from the Promoters of Pipavav Defence 13,00,00,000 equity shares representing approx. 18% shareholding in the Company at a price of Rs 63 per Share, aggregating Rs. 819 crore.Commenting on the acquisition Nikhil Gandhi, the founder promoter and Chairman of Pipavav Defence and SKIL said together they will make a big defence conglomerate.This is the first big deal after the government opened up defence sector, said Gandhi. Both have a shared vision for infrastructure growth, he addedAccording to him the deal is likely to be completed within 3-4 months and will be done in line with regulatory framework.Reliance Infra is committed to play a long-term game in defence, said GandhiBelow is the transcript of Nikhil Gandhi's interview with CNBC-TV18's Shereen Bhan, Sajeet Manghat and Varinder Bansal.Shereen: There were all kinds of speculation on who you were talking to, whether it was M&M or Hero and this one has come as a complete surprise - Reliance Infrastructure it is that you have decided to go with, take us through the rationale behind this?A: Defence is a very complex and very special subject as far as we are concerned. In this country not many people have made large investments in defence. So, you need a partner who is like minded and who also understands this game very clearly and you have to always stay ahead of time.

Like what we built was far ahead of time and we could think about it 6-7 years ago and we found that the Reliance Infrastructure and Anil Ambani group was meeting our thought and our vision and they were fully committed to not only build infrastructure further but also play the long- term game because this could become a game changer.

If you recall that after government of India introducing the "Make in India" policy this is the single largest investment which is being announced. So, the proof of pudding lies in eating. The group has committed a very large resource to make this company Indian multinational in the defence sector.

Shereen: We understand that you were in conversation with both M&M, those talks fell through. We also then were given to understand that you were talking to the promoters of the Hero Group - the Munjal family and it is clear that those talks didn't go far either. Was it issues related to valuation or the role of promoters that has inked this deal in favour of Reliance Infrastructure? Is Reliance Infrastructure offering you both better valuations as well as role for yourself?A: I am not commenting on any other company because that would not be fair on my part to do so. I want to tell you about the company who we are partnering with. So far as our role is concerned going forward it is going to be significant because we have a domain knowledge in the defence sector, we have been in this for about a decade ago. We realised that a country cannot become a developed country unless its national security and energy security sector is firmly in place and self reliance is achieved. I think Anil Ambani group has given us that comfort and confidence and they are equally visionaries and their commitment is very deep. So, we think we are lucky and honoured to have a partner like them because this is a long-term game and you need a committed player to get into this sector and succeed in this sector. If you remember that there are many people are interested in this sector there will be many more investments one would see in this sector but whoever comes first is more valuable.

Sajeet: Just wanted to check with you the purpose of getting a strategic partner was equity infusion in the company. However this deal does not see any equity infusion. In fact the promoters are selling roughly 18 percent and there is an open offer coming in. So, where is the equity infusion? Will that be the next step as part of the deal?A: Yes indeed because Anil Ambani's Group is very heavily committed to ensure that there is required capital available to the company and its operations. Since our company has made significant investment in building India's finest naval defence facilities and one of its kind in the world. I don't need much of capital into the company because most of the infrastructure is very much in place and with the current infrastructure this company can manufacture large and complex assets like destroyers, submarines and aircraft carriers. The deal structure is perfectly in place. Our competence was more of building the world class infrastructure and their competence is to run them successfully. We also have some global partners and I think together this company can make a huge progress and it is a very good combination as far as we are concerned.

Sajeet: What happens to the corporate debt restructuring (CDR) because we understand that the Rs 7600 crore CDR plan was deferred by the lenders some time last week or in the last 10 days? What happens to the CDR and are the lenders onboard as far as the change in management is concerned?A: Let me clarify that CDR is absolutely in place. There is no question of deferring the CDR. It is absolutely very much in place, the lenders are fully onboard and all the key lenders have given their approval. So, it is on track. Number two, through the incoming investors the company is going to get further strength as it is required by the company. So, I think lenders are going to be far more comfortable with another investors like Anil Ambani coming into the company. So, all in all it is a win-win situation for both lenders and all the shareholders.Sajeet: What is the expected timeline for the completion of the deal?A: Typically it takes between 3-3.5 months because we have to secure regulatory approvals and we would be on course to do that. However, we do not foresee any challenges going forward.Varinder: With regards to debt - this does not help the debt, which has been a big problem for most of the shipping companies. What is the course of action on that front? I just wanted to know that are there any formalities which are pending as of now and we may see some changes in the deal if at all in the coming days?A: Firstly, this is the lowest cost infrastructure in the country. This infrastructure is far superior and bigger in the country both in private sector and the public sector. This is one of the three of its kind in the world. We have the second largest dry dock in the world. So, we have a debt which is far lower compared to anyone else. We are very much within manageable limits. Number two, this deal is signed, sealed and delivered and I think that Anil Ambani is very heavily committed towards the defence sector and we have made the best possible choice for our company and for our shareholders. It is our commitment to our shareholders to continue to create value and we have a track record of 25 years to create value on a constant basis in everything what we have done before, be it India's first private sector port, railways, roads etc. So, we are quite happy to say that the deal is signed, sealed and delivered.Varinder: Since you are so bullish and we are listening about so many opportunities in defence, why did the promoters then decide to exit? What does Reliance Infra bring on the table because they don't have technology, they are also venturing as a new corporate entity into defence. So, what does Reliance Infra bring to the table of Pipavav Defence? What is the capex in the next 1 or 3 years because of the huge order book of nearly Rs 30000 crore which is with Pipavav Defence in the coming years? A: It is a visionary group and we are very proud to partner with them. They are heavily committed. Number three they understand defence very well because you want to partner with a company who is decisive, who is committed towards this, that defence is a very specialised field and you need a deep rooted commitment which we can clearly see in this group. They are clearly visionary.After the government of India has opened up this sector about 8-9 months ago, this is the first big deal that you have seen because lot of people are in discussion with many people across the country, across the globe but the real proof of pudding lies in eating. This is a first serious investment one has seen in the defence space.Sajeet: Reliance Infra has the option to take up the stake up to 44 percent and that is only subject to success of open offer. Given your current price, which is Rs 76 and the open offer at Rs 66 the likelihood of the open offer going through is very less which means that the promoters will be selling additional 7.4 percent stake to Reliance group so that their stake goes up to 25.1 percent - is that the agreement?A: It is a hypothetical question. We will deal with the subject when the time comes because it will be in line with the regulatory framework we have in this country. The fact of the matter is that this is a large investment, a large commitment and first of its kind after the government announced the "Make in India" policy and also announcing the self reliance in the defence sector. So, this will of course be the first step. There will be many more investments like this in the offing but the first investment is very valuable.

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