Hanwha Gets Nods from Australia to Increase Investment in Austal
Australia’s Treasurer Jim Chalmers said that the government has decided to let South Korea’s Hanwha Group increase its investment to become the largest investor in shipbuilder Austal. The reports said the government will place restrictions on the operations to ensure the confidentiality of sensitive information pertaining to national security matters.
Austal’s CEO, Paddy Gregg, said the company had not yet been officially notified by the government about the approval and the terms of the restrictions. He, however, said they would respect the decision of the government.
The company had previously rejected overtures from Hanwha for a possible acquisition, citing national security issues in its role as a strategic builder for the Australian Navy. The company questioned whether the South Korean company could gain approvals from the Australian government and also noted its growing role in the United States as a supplier to the U.S. Navy and the U.S. Coast Guard.
Hanwha had indicated it was willing to pay more than A$1 billion to acquire Austal but said the company had set onerous conditions to proceed with a due diligence. Austal had demanded that Hamwha prove the ability to gain the necessary government approvals before it would share operational and financial data.
The strategy shifted to a proposal for a strategic partnership, and in June, Hanwha announced it had acquired 9.9 percent of Austal’s shares in open market transactions. It also entered into a swap arrangement to obtain an additional 9.9 percent of the shares pending government approval.
Chalmers said that after extensive discussions with defense and foreign affairs officials, he had decided to grant the approval for Hanwha to increase its position to a maximum of a 19.9 percent ownership stake in Austal. Anything over 10 percent requires government approval, and it was noted that the company would have to seek further approvals if it sought to increase its position further.
U.S. officials in June had indicated they did not object to the deal, according to reports from Hanwha. It said in fact the U.S. would not object if it acquired 100 percent of Austal. Gregg said in today’s statement that Austal had sought clarifications for the U.S. and has never received a reply from the U.S.’s Committee on Foreign Investment in the United States. The company now considers it “unlikely to receive” information from the U.S. authorities.
Hanwha told the Korean media that it was pleased to receive the approval and would comply with the approval conditions placed by the Australian government. It said it would “strengthen strategic cooperation with Austal by leveraging Hanwha’s capabilities and insights.” The acquisition of the shares is being made through an Australian entity set up by Hanwha Aerospace and Hanwha Systems. The company had previously said it would also seek a board seat at Austal after the share acquisition.
The South Korean company has been working to grow its share in naval shipbuilding since acquiring Daewoo Shipbuilding & Marine Engineering and then the Philly Shipyard in the United States. Its systems division is already a supplier of electronics for naval shipping.
Austal highlights that it has never been in a stronger position in its business. The company currently has an orderbook exceeding A$13 billion (more than US$8.6 billion). In addition, it says it expects a significant enhancement when the contracts are signed for Australia’s Landing Craft medium and Landing Craft Heavy projects for which it has already been selected.
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