India’s engineering major, Larsen & Toubro (L&T) Ltd., and the European aerospace group EADS are charting out a new equity structure for the proposed joint venture in India. The joint venture between L&T and EADS aims to make electronic warfare systems, radar instruments and avionics.
Although the new equity structure of the joint venture has not been filed to the Indian government, L&T is now expected to hold a 74% stake in the venture and the remaining 26% stake will belong to EADS. Earlier, the Indian government had rejected this since the foreign direct investment (FDI) exceeded the cap of 26 per cent in the defence sector.
The proposed joint venture will focus on the requirements of the Indian defence forces. The L&T-EADS joint venture will have a manufacturing facility at Talegaon in Maharashtra, in which L&T is investing Rs 100 crore.
L&T, the premier engineering firm of India, has been tapping the growing opportunities in the Indian defence sector and has been a major supplier of critical systems to India’s defence forces for two decades. According to L&T officials, L&T currently earns revenues of around Rs 400 crore from the defence sector.
The Indian government had rejected an earlier proposal for this joint venture which sought a 51% stake for L&T, while the remaining 49% stake was to be equally distributed between two entities, namely EADS, which was to directly hold 24.5%, and the joint venture between L&T and EADS. L&T was to own 51% in this joint venture which was set up to provide services to the defence sector. However, this violated the 26% cap on FDI because EADS would have both a direct stake as well as an indirect holding through the joint venture on services.
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