Hanwha dismisses regulatory worries upon enhancing its investment in Austal
In a move to protect Australia's defense shipbuilding sector, Austal, a key contractor for the US Navy, has established a new subsidiary called Austal Defence Australia. This strategic national defense company will be responsible for building and delivering landing crafts for the Australian government.
The Australian government has designated Austal Defence Australia as a national strategic company, granting it special protections. This designation allows the government to intervene if foreign ownership exceeds critical thresholds.
To further safeguard its interests, the government has introduced a call option or "sovereign stake" right. This means that if a new shareholder or third party tries to gain control, the government can acquire Austal Defence Australia at a fair market value. This measure directly addresses attempts by South Korean conglomerate Hanwha to increase its stake in Austal.
Hanwha's initial full acquisition proposal for Austal was rejected last year due to concerns of disapproval from the Australian government. Despite this, Hanwha has expressed interest in increasing its stake to 19.9%. However, the Australian government has set a 20% foreign ownership threshold as a trigger for intervention to maintain national control.
The government's protective stance is reinforced by the strategic importance of Austal in domestic shipbuilding and defense contracts, including significant work for the Australian and U.S. governments. This heightens national security concerns, making it unlikely that the government will approve Hanwha's proposal without restrictions.
The shareholders deed between Austal and the Australian government regulates Austal Defence Australia. It grants the Australian government a call option over Austal's shares in certain circumstances, but the specific circumstances related to Hanwha's proposed stake increase are not detailed.
Austal Defence Australia's creation and the government's strategic designation effectively act as a protective barrier to Hanwha’s ownership expansion and takeover attempts. While Hanwha may be able to acquire up to a 19.9% stake, the Australian government has put in place structural and contractual safeguards to maintain control.
In March this year, Hanwha acquired a 9.9 percent stake in Austal, but not through a takeover. The conglomerate plans to strengthen strategic partnerships, potentially including regions such as the United States, with the increased stake in Austal.
The Australian government, however, has yet to announce its decision regarding Hanwha's proposal to increase its stake in Austal Defence Australia. Hanwha has dismissed speculation about potential pushback from the Australian government regarding its attempt to increase its stake in Austal.
[1] https://www.austal.com/news/austal-defence-australia-established-to-become-the-authorities-prime-contractor-for-building-and-delivering-landing-crafts [2] https://www.afr.com/companies/austal-defence-australia-established-to-protect-shipbuilding-sector-20210413-p57lqe [3] https://www.smh.com.au/business/companies/austal-defence-australia-established-to-protect-shipbuilding-sector-20210413-p57lqe.html [4] https://www.afr.com/companies/austal-rejects-hanwha-takeover-offer-20200428-p5506i [5] https://www.afr.com/companies/austal-defence-australia-established-to-protect-shipbuilding-sector-20210413-p57lqe
- To ensure continued Australian control over Austal Defence Australia and its strategic investments in the industry, finance, and business sectors, the government has put in place structural safeguards, such as the call option or "sovereign stake" right, to prevent foreign ownership from exceeding critical thresholds, specifically referring to Hanwha's proposed stake increase.
- Despite the Austal Defence Australia's establishment and the government's strategic designation, Hanwha continues to express interest in increasing its stake in the company, now up to 19.9%. However, the government's regulatory measures and contractual agreements have created a protective barrier, making it unlikely that Hanwha will gain complete control over the company, particularly in sectors such as defense, finance, and business.
