(Reuters) - British defence contractor Chemring Group Plc L:CHG said it would sell its European munitions business to France's state-owned Nexter Systems SA for up to 167.8 million euros (138 million pounds) to focus on its core defence technology business.
Shares in the company, which slipped out of the FTSE-250 Midcap Index last year, rose nearly 5 percent in early trade on Thursday.
The defence contractor has been selling its non-core businesses since last year to reduce dependence on U.S. and European markets and pushing into non-NATO markets.
The sale of the munitions business — Mecar and Simmel — would help Chemring focus on its defence technology business that will include Sensors & Electronics, Countermeasures and Energetic Systems.
The company, which makes ejector seats for fighter jets and decoy flares used to counter heat-seeking missiles, said it would use part of the sale proceeds to repay debt.
"This (reducing debt) is positive, in our opinion, as it reduces balance sheet risk and provides management with flexibility to address tough defence end markets," analysts at Investec Securities wrote in a note.
The analysts said the management was making good progress in implementing its strategic plans, and improving Chemring's position in a difficult market.
Chemring began restructuring its business last year under Chief Executive Mark Papworth, who took over in 2012, after a slew of profit warnings and failed takeover talks.
The company said its remaining pyrotechnics and munitions products business, which provides naval and land forces ammunition and minefield breaching systems, would be merged with its Energetic Systems division.
Chemring's shares were trading up 2.3 percent at 243 pence at 1045 GMT.
(Reporting by Tasim Zahid and Aashika Jain in Bangalore; Editing by Gopakumar Warrier and Sriraj Kalluvila)