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Australia’s largest shipbuilder has said it would be a “strange outcome” if the government allowed it to be taken over by a South Korean company, given Canberra’s focus on rebuilding the country’s defence and manufacturing capabilities.
Hanwha, South Korea’s biggest defence group, has purchased a 9.9 per cent stake in Perth-based Austal after making multiple unsuccessful offers for the business in the past two years.
It has also acquired options to double its stake and last week received the green light from the Committee on Foreign Investment in the US (Cfius) to do so, a move that could pre-empt a full takeover. Austal derives 80 per cent of its revenue from the US, and Hanwha views the Australian shipbuilder as a gateway into the American naval shipbuilding market.
The deal now awaits approval from Australia’s Foreign Investment Review Board, which could block a stake raise or takeover on national security grounds.
Austal argues allowing Hanwha to acquire one of Australia’s few listed defence companies would undermine Canberra’s desire to enhance its shipbuilding capabilities at a time when China is projecting naval power further into the Pacific.
“Sovereignty is getting more important, not less important, so being Korean owned doesn’t feel like it meshes with the government’s desire to increase sovereignty,” Austal chief executive Paddy Gregg told the Financial Times at the company’s shipyard in Kwinana, south of Perth, where it makes patrol boats.
Austal turned down a $1bn bid last year, saying it had no realistic prospect of approval by Canberra or Washington due to “ownership clauses associated with defence contracts”.
But many American policymakers want Hanwha to play a leading role in joint US-South Korea shipbuilding efforts as officials in Washington increasingly recognise the need to harness Asian allies’ expertise to keep pace with China, said analysts.
Australian defence minister Richard Marles, whose parliamentary constituency of Geelong hosts a Hanwha armoured-vehicle plant, said last year the government had no problem with the South Korean company “moving in this direction”.
However, Gregg questioned whether regulators would allow a takeover given Austal’s central role in upgrading Australia’s defence fleet, with the company signed on to four major shipbuilding programmes.
“It would be a strange outcome based on how much work they’ve put into the Defence Strategic Review,” he said.
The review led to the largest increase in Australia’s defence budget in decades — A$50bn (US$32bn) over the next 10 years — and put domestic construction of naval vessels at the heart of the country’s defence strategy.
Gregg also noted complications related to bidding for the government’s Sea 3000 frigate programme. Japan’s Mitsubishi Heavy Industries and Germany’s Thyssenkrupp are competing for a contract to deliver 11 frigates, eight of which will be built by Austal in Western Australia based on the winning bidder’s technology.
Regulators would need to factor in potential opposition from the Japanese and German shipbuilders in the event that Hanwha — which lost an earlier round of bidding — bought out their Australian partner, said Gregg.
Austal also questioned Hanwha’s interpretation of Cfius’s ruling that it had obtained clearance to buy “100 per cent” of the Australian company.
In response, Michael Coulter, Hanwha’s global defence chief executive, told the FT: “While our intention remains to increase our current 9.9 per cent shareholding to a strategic 19.9 per cent equity position, Hanwha does not need any additional approval from Cfius to acquire additional shares in Austal beyond that equity position.”
“From an Australian perspective, you might not want a key shipbuilder to fall into foreign hands,” said Dongkeun Lee, a Canberra-based policy fellow at the Asia-Pacific Leadership Network, “but this is also an opportunity for a top-tier global shipbuilder to invest money and knowhow in a sector that has been in decline for decades.”
