Hanwha eyes US shipbuilding growth with more stake in Austal

South Korean conglomerate Hanwha Group is positioning itself to become the largest shareholder of Austal, one of four key companies directly supplying vessels to the US Navy, in a strategic move to strengthen business ties with the US in the shipbuilding sector.

According to Hanwha on Tuesday, it acquired a 9.9 percent stake in Austal through an over-the-counter transaction on the Australian Securities Exchange. The company also forged a Total Return Swap agreement through a local Australian brokerage for another 9.9 percent stake. TRS allows two parties to receive the gains and losses linked to an underlying asset, such as a stock, without actually owning the asset itself.

Once the Australian Foreign Investment Review Board approves this investment, Hanwha is poised to become Austal’s largest shareholder, outpacing Tattarang Ventures, which currently holds a 17.09 percent stake.

This stake purchase was reportedly facilitated by a paid-in capital increase from Hanwha Group’s two subsidiaries -- Hanwha Systems and Hanwha Aerospace -- into their Australian entity, HAA No.1 PTY LTD. Hanwha Systems and Hanwha Aerospace injected 202.7 billion won ($140.1 million) and 64.2 billion won, respectively, into the subsidiary, bringing its total capital to approximately 337 billion won.

This move comes after a previous unsuccessful bid to acquire Austal last year, when Hanwha offered 1.02 billion Australian dollars ($650.3 million), only for Austal to decline over concerns of potential disapproval from the Australian federal government. As Austal is designated as a strategic shipbuilder by the Australian government, any foreign acquisition requires approval from the Committee on Foreign Investment in the US and the US Defense Counterintelligence and Security Agency as well as Australia’s Foreign Investment Review Board.

“While pursuing the acquisition again was an option, the consensus within Hanwha leaned towards focusing on immediate actions, as the acquisition process could be very time-consuming,” said a source close to the matter on condition of anonymity. “This stake purchase is a strategic pivot for the company to gradually increase its influence over Austal, serving as a key opportunity to expand its shipbuilding business with the US military.”

Along with Italy’s Fincantieri, the US’ Huntington Ingalls Industries and Lockheed Martin, Austal designs and constructs ships for the US Navy. The Australian shipbuilder boasts an order backlog worth 14.2 billion Australian dollars, dominating a 40-60 percent share in the US small surface vessel and auxiliary ship market. It operates shipbuilding facilities in Alabama, San Diego and California, as well as Australia, the Philippines and Vietnam.

Hanwha stressed that if its established shipbuilding expertise in the global commercial shipping and naval sectors creates synergies with Austal, it could see a significant surge in global shipbuilding orders, including the US. As a board member, Hanwha would participate in Austal’s management and leverage its shipbuilding bases in the US.

This initiative was primarily driven by Donald Trump’s push to revitalize the declining US shipbuilding industry and its impact on the US Navy. After Trump won the US presidential election in November, Yoon Suk Yeol and Trump spoke on the phone, during which Trump emphasized the importance of collaboration with South Korea. Following his inauguration, legislative proposals such as the Ships for America Act and the Ensuring Naval Readiness Act have been introduced, aiming to expand shipbuilding infrastructure with US allies.

“Hanwha Group’s stake acquisition in Austal reflects its proactive approach towards special-purpose shipbuilding projects from the US,” stated Byun Yong-jin, an analyst from iM Securities. “Through this financial agreement, Hanwha has demonstrated its commitment to making substantial investments in the US.”

Last year, Hanwha acquired the Philadelphia Shipyard for $100 million and has been aggressively recruiting local talent to enhance its competitiveness in the US shipbuilding industry.

Hanwha is also striving to enhance its presence in the global naval market by participating in a bid to build the lead ship for the Korean Destroyer Next Generation program, valued at 7.8 trillion won. This marks the country’s first domestically produced destroyer project that involves constructing both the hull and the Aegis system using homegrown technology. The Defense Acquisition Program Administration is expected to determine by Apr. 4 whether to proceed with competitive bidding or to award a sole-source contract.

If Hanwha wins the bid, it will significantly boost its competitiveness in constructing surface vessels, which is likely to play a crucial role in securing orders from the global naval market, sources said.