Johannesburg: Saudi Arabia has made a $1 billion bid for a broad partnership with South African state-owned defence group Denel that would include acquisition of a minority stake in a joint venture with Germany’s Rheinmetall, a source familiar with the offer said.
Saudi Arabia, the world’s third-largest defence spender, is seeking partnerships to develop its own domestic defence industry with the goal of localising half of its military spending by 2030. Saudi Arabian Military Industries (SAMI), the state defence company, said last month that it was in discussions with all major South African firms and aimed to conclude the first deals by the end of this year.
According to the source, Saudi Arabia was targeting Denel’s 49 per cent stake in Rheinmetall Denel Munition (RDM).
The Saudis expect an answer from the South African authorities by the end of December.
“Saudi Arabia has made a unique business proposition to the South African government. As our discussions are not finalised yet we cannot provide any comment,” SAMI CEO Andreas Schwer wrote in response to Reuters’ questions.
RDM is a South African-based joint venture formed in 2008 between Denel and Rheinmetall Waffe Munition GmbH, which holds the remaining 51 per cent stake. It specialises in the development, design and manufacture of medium and large-calibre ammunition, including artillery shells.
The German government is currently reviewing all arms sales to Saudi Arabia after the killing of journalist Jamal Khashoggi in the Saudi consulate in Istanbul.
Industry sources said RDM operates independently and is subject to South African law, which means exports from the unit are not subject to German government oversight. The sources said they did not expect that a change in the ownership of the venture would require a German government review.
Under the Saudi offer, SAMI would also finance R&D in other Denel divisions including Denel Dynamics, which develops and produces tactical missiles and precision guided weapons. Denel and SAMI would share intellectual property and under a new joint venture would target defence export markets in the Middle East and North Africa.
Finally, Saudi Arabia — already a top Denel customer for military vehicles, artillery munitions and radar equipment — would purchase a certain amount of the group’s production.