Denel Asia, the controversial Gupta-linked joint venture that has seen open war between the state-owned arms company and the treasury, is necessary to get back into the lucrative Indian market, the company said this week – even as that country actively courts South Africa.
Denel Asia LLC was established in Hong Kong “subsequent to finalising due approval processes”, Denel chairperson Daniel Mantsha wrote in the company’s 2016 annual report, which it published on Monday after inquiries by the Mail & Guardian.
The treasury has argued that the company, a joint venture with VR Laser Asia, in which Gupta business partner Salim Essa is the sole shareholder, was illegal for lack of authorisation. Public Enterprises Minister Lynne Brown banned Denel Asia from doing business until that claim was settled.
That sequence of events makes no appearance in the company’s extensive annual report, however. Instead it focuses on the benefits Denel Asia will bring, especially in India.
“The partnership brings access to markets in a region where Denel had been blacklisted for more than a decade,” Mantsha said.
Denel was blacklisted in India in 2005, amid allegations of bribery that were never substantiated. Insiders later claimed this had been part of a gambit to separate Denel from designs for a cutting-edge antitank rifle without paying for it.
India first signalled in August 2014 that the ban would be lifted. Denel first sought authorisation to set up the Hong Kong subsidiary at the end of 2015.
Lifting the ban was part of a process to actively court companies such as Denel, Indian defence experts say, because it has been looking for new suppliers to take part in a “Buy & Make India” initiative, which demands 50% Indian input in major projects.
In recent months at least two Indian delegations have visited South Africa to make clear the country’s eagerness to have Denel return to its shores.
But under the “Buy & Make” rules Denel would literally have to go to India, with major manufacturing to take place in that country.
That fits with Denel’s own expectations. Denel would provide a manufacturing licence for its technology, the company told Parliament earlier this month, while VR Laser Asia would fund business development.
VR Laser Asia is a letterbox company with no manufacturing capacity. That suggests the company will hawk Denel technology to Indian manufacturers in return for 49% of any profits made.
Denel exhibited a number of weapons at an Indian trade show in May, with a slight emphasis on artillery systems. This week it confirmed that such weapons would be its main focus on the subcontinent.
“There are a number of opportunities that Denel Asia will be pursuing in the market, mainly in the artillery domain,” the company said in a note to its financial statements.
UPDATE, September 21: On Wednesday the communications department for Oakbay, which acts on behalf of the Gupta family, described as “an inaccuracy” the link the Mail & Guardian made between Denel Asia and the Guptas.
“No member of the Gupta family are shareholders in Denel, Denel Asia or VR Laser Asia. Through Oakbay Investments the Gupta family has an indirect minority stake in VR Laser (South Africa) only,” the Oakbay communications desk said.
It did not immediately respond to questions on Salim Essa, and whether his sole shareholding in VR Laser Asia constitutes a link.