India looks to sell $680m stake in state-run defence company

The Indian government will sell a stake of about 10 per cent in defense contractor Hindustan Aeronautics

The Indian government will sell a stake of about 10 per cent in HAL, with options to sell 5 per cent more. Reuters

India plans to sell as much as 15 per cent stake in state-run defense contractor Hindustan Aeronautics through a public offering of shares, as Prime Minister Narendra Modi seeks funds to shore up government coffers.

The Indian government will sell a stake of about 10 per cent, with an option to sell a further 5 per cent in the company, according to a stock exchange filing Wednesday. At a floor price of 1,001 rupees a share, the sale could fetch as much as 50.2 billion rupees ($680 million/Dh2.4bn). Retail investors will get a 5 per cent discount on the offer price. The floor price is at a discount of almost 15 per cent to HAL’s closing price of 1,177.60 rupees Wednesday in Mumbai.

Mr Modi’s administration is raising funds to bridge a fiscal deficit that is threatening to spiral out of control on the back of the worst economic decline in decades. The government hopes its drive to purchase weaponry from local players and attempts to move away from being the world’s largest defence importer will draw investors to the offering.

India this month decided to stop importing more than 100 items used by its armed forces, which cost $47bn over the past five years, in a bid to boost local manufacturing, and had earlier said it plans to induct the indigenously-made Light Combat Aircraft from HAL. Apart from the LCA, named Tejas, HAL makes the Su-30MKI under licence from Russia’s Sukhoi. It plans to build a medium lift helicopter and an unmanned aerial vehicle for the navy.

While New Delhi is the world’s third-biggest military spender, its air force, navy and army are still equipped with weapons that are largely obsolete. It needs about 42 squadrons of fighters to defend its western and north-eastern borders simultaneously but is making do with about 31 squadrons only. By 2022, it is likely to add on two more squadrons of the Rafale fighter manufactured by Dassault Aviation.