Continuing to defend its joint venture (JV) with steel manufacturing group VR Laser Services to establish Denel Asia, State-owned defence industrial group Denel told the Portfolio Committee on Public Enterprises in Parliament on Wednesday that its decision to extend its business footprint in South East Asia was “part and parcel” of the group’s growth strategy.

Denel was currently in talks with National Treasury over the Gupta family-linked JV, which had allegedly failed to secure executive approvals in line with the Public Finance Management Act (PFMA) before it was established in January.

The group had also been criticised in recent weeks by Finance Minister Pravin Gordhan, who maintained that the registration of Denel Asia was illegal.

Addressing the portfolio committee, acting group chief financial officer Odwa Mhlwana maintained that Denel had submitted a prenotification letter for the approval of Denel Asia to the Department of Public Enterprises (DPE) and National Treasury on October 29, 2015 and had received approval, with conditions, from DPE the following month.
 
It then submitted an application in terms of the PFMA to both DPE and Treasury on December 11, 2015, to which it received no response.

Mhlwana argued that, in terms of Section 54 of the PFMA, applicants could assume that approval had been granted if no response was received within 30 days. Denel therefore proceeded with the registration of Denel Asia in Hong Kong after 47 days – 98 days after the first prenotification was sent.

He added that Asia was becoming an increasingly important market and that defence industry experts estimated that half of future global defence sales would involve countries on the Asia Pacific.
 
Mhlwana further noted that Denel’s selection of partners was largely driven by market intelligence and existing relationships of trust. VR Laser had been doing business with Denel for more than 15 years and was responsible for the fabrication of hulls for mine-protected vehicles and mechanical structures for weapon systems.
 
Mhlwana also explained to the portfolio committee that the decision to form Denel Asia was initiated by Denel’s previous group CEO, Riaz Saloojee, who made a proposal in this regard to the current board on September 10, 2015. The board approved Saloojee’s request for authorisation. Four potential partners were considered before a decision was taken to select VR Laser Asia based on the company’s experience and track record of VR Laser working with Denel.
 
The Hong Kong-based Denel Asia was 51% owned by Denel and 49% owned by VR Laser Services, which was itself a JV company between Duduzane Zuma and Rajesh Gupta and was wholly owned by long-time Gupta family business partner Salim Essa.

INTERNATIONAL OPPORTUNITIES
Meanwhile, Mhlwana pointed out that Denel was increasingly looking at export sales – including in the rapidly expanding Asia-Pacific region – in terms of its mandate to create a financially self-sustainable defence business.

He noted that, while the company regarded the South African National Defence Force as its primary client, it was increasingly looking outside South Africa for opportunities.
  
He pointed out that, in the current financial year, export sales already accounted for 52% of Denel’s total turnover, with the primary markets in the Middle East, Asia-Pacific, Europe and South America regions.
 
Mhlwana added that JVs and partnerships had been part of Denel’s operational model for more than a decade, but were becoming increasingly necessary as Denel expanded its global footprint. He cited Denel’s 49% stake in Turbomeca Africa, a subsidiary of the global Safran Group, and its JV with Airbus Defence and Space, called Airbus DS Optronics.

Likewise, Denel helped establish Abu Dhabi-based Tawazun Dynamics to manufacture precision-guided munitions in the United Arab Emirates, as well as Germany-based Rheinmetall Denel Munitions, which contributed more than R2-billion to Denel’s yearly revenue.
 
Mhlwana said the board was fully committed to good governance at Denel and was implementing a reputation management plan to restore confidence in the Denel brand. Financial partners and key clients were regularly updated about developments and employees were kept informed through roadshows.
 
Denel’s business continued to deliver on its order book and marketing efforts had been intensified, he said.