Saab changes tune, gets BEE partner

subscriber | 30 June, 2008

JOHANNESBURG. Saab South Africa, a subsidiary of the Swedish defense- and technology company Saab AB, is positioning its interests in South Africa for a life beyond the harsh offset contract it agreed to to win a ground-breaking sale of 28 Gripen jetfighters to the country in 2000. Saab, which sees South Africa as the 'second home market' has now de-linked its arms- and technology companies in the country. A new black empowerment partner has been found, at last, who replaces the entry-partner the Kunene Brothers. The latter a surprise exit and realised handsome profit late last year.

The search for a black empowerment partner has been going on since, in total some nine months. The new partner, which has not yet been made official, is believed to be Mr. Enos Banda and his company Freetel, who is bound to take a 25-30 percent stake in the technology company. The value is not known to Africascan, but if the Kunene’s divestment is anything to go by the stake could be worth from SEK 200 million and up. Likewise the terms of the financing are not known.

Saab’s split-up was, Africascan is told, caused by a combination of the company's need to restructure the company’s black empowerment partnership after the Kunene brothers were cashing in on a seven year partnership with Saab.

The company also felt that the black partners in South Africa were unduly piggybacking on the international arms contracts Saab has picked up and the South African subsidiaries are benefitting from.

Furthermore, after a successful run in achieving - in Saab representatives own word - the US$ 7.2 billion offset deal the company doesn’t need black partners on the arms side of the business to the same extent.

Arms analysts believe that Saab and BAE were helped along by the South African government in delivering on its commitment. This was done by the South African Government generously allocating US$ 1.5 billion, or 21 percent, of the total offset needed. The trade-off, as part of the SA Government’s plan to inject private partnerships in its unprofitable arms industry, was that Saab took over the management of Denel Aerostructures and that it made a relatively small initial SEK 60 million investment. Future investments in Denel Aerostructures were linked to the company achieving certain milestones and therefore ring-fenced from a cost point of view.

Africa defense analysts believed that the Denel deal, contrary to the views of investment analysts in Sweden, that the deal was a major coup for Saab - and indeed BAE Systems.

The offset deal, a commitment Saab and it’s offset partner BAE Systems concluded with South Africa in 2000, was part of a groundbreaking combined Gripen and Hawk jet fighter contract.

The contract was brokered after heavy involvement and lobbying by Swedish and British Governments and has ever since its conclusion been been fraught with suspicions of possible bribes also in the Gripen part of the deal, but by former international marketing partner BAE Systems - an investigation was started by the British Serious Frauds Office in 2006. The Swedish Attorney General has not found reason to take the case any further.

Saab’s main arms interests in South Africa, after the division, consists of Saab Grintek’s defense business as well the Saab Denel Aerostructures joint venture with the South African government.

The Swedish jet fighter manufacturer, in what was considered a major coup by the company’s representative, traded valuable offset points against taking management control and a minority share holding in the Aerostructures company a year ago. That deal concluded by former Saab South Africa CEO Per Erlandsson, a lawyer by profession, who has since retired in South Africa.

Saab has, on the back of the arms deal, become the largest Swedish company in South Africa and by far the largest Swedish investor in the country. The turnover is about SEK 2 billion and there are in total 2000 employees in subsidiaries and joint ventures.

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