ST Eng'g maintains innocence over ST Kinetics debarment in India

STE’s recent ~S$880m contract win to build patrol vessels for the Royal Navy of Oman, demonstrated its ability in winning defence contracts has not been compromised  by the India debarment, says OCBC.

Since news of the debarment broke out, STE has maintained its innocence and sought to clear its name of any shenanigan.

In addition, STE disclosed that STK has never won any defence contract or exported defence sales to India, since developing  defence export sales is usually a long  process. Thus, STE has not included any expected sales to India in its FY12 guidance.

STE last Friday announced  that its subsidiary ST Kinetics has filed a writ petition with the High Court of Delhi in
New Delhi, naming India’s Ministry of  Defence and Ordnance Factory Board (OFB) as respondents.

According to OCBC, with the filing of the writ petition, STK is seeking to negate an OFB debarment order that prohibits STK from ‘further business dealings with the OFB for a period of 10 years.’

To recap, the OFB  debarred a number of defence companies,including STK, from doing business in India
after evidence of illegal gratification to  officials, including Sudipto Ghosh, the former Director General of the OFB.

OCBC notes that with the vigorous insistence of its innocence, STE’s ability to win defence-related contracts
is unlikely to be diminished and the likelihood of its share price taking a big hit from this issue is low.

In addition, STE, it said has explicitly said the debarment has no impact on its financial performance and maintains its FY12  guidance.

OCBC cautions nonetheless that STE’s attempt to reverse the OFB debarment order, even if successful,
will require many years’ time and effort.