Hanwha wins Australian government approval to increase its stake in Austal

The Australian government has approved Republic of Korean company Hanwha’s long-standing application to increase its stake in Western Australian shipbuilder Austal to 19.9%. “Today I have agreed to the clear recommendation from the Foreign Investment Review Board to not object to Hanwha’s proposal to increase its shareholding in Austal Limited from 9.9 per cent to 19.9 per cent, subject to strict conditions,” said Dr Jim Chalmers, Australia’s Treasurer.

This decision is likely to raise eyebrows at Japanese company Mitsubishi Heavy Industries (MHI): Austal has been nominated by Defence as the builder of up to eight Japanese upgraded Mogami-class frigates under Project SEA3000 at its yard at Henderson in Western Australia. The first three Mogami-class ships from an order for up to 11 will be built by MHI, which is prime contractor for the program, in Japan.

Hanwha Ocean was one of five companies that responded to Defence’s initial Request for Proposals (RfP) for Project SEA3000 last year; two companies were shortlisted, MHI and Thyssen-Krupp Marine Systems, offering a variant of the new-generation MEKO 200 design. In early August this year MHI and the Mogami frigate were selected as winners of the contract.

Later in August Austal announced the formation of new subsidiary Austal Defence Shipbuilding Australia, along with signing the official Strategic Shipbuilding Agreement (SSA). This appointed Austal Defence Australia as the Australian government’s strategic shipbuilder for Tier 2 surface combatants at a consolidated Henderson naval precinct. Under the SSA the Australian government will also hold a ‘Sovereign Share’ in Austal to safeguard Intellectual Property, Governance and Oversight. Austal will build 18 Landing Craft Medium (LCM) and 8 Landing Craft Heavy (LCH) for the Australian Army as well as the Mogami-class frigates.

Austal has resisted a larger Hanwha stake than 9.9% partly because it fears leakage of sensitive Intellectual Property (IP)  and other information as well as a possibly influential Hanwha presence on its board of directors.

However, “Today’s decision follows a robust and thorough review process by FIRB and the Treasurer, and we are pleased that we have been able to meet the Australian Government’s expectations,” said Jae-il Son, CEO and President of Hanwha Aerospace, who added that the approval created the opportunity for Hanwha and Austal to collaborate strategically on defence shipbuilding opportunities.

“We also respect conditions for the approval and Hanwha will maintain full compliance,” he said. “We have always been confident of the benefits our investment will bring, and we will leverage our capabilities and insights for the benefit of the company and its stakeholders. We are pleased with the outcome of the FIRB process and we look forward to having productive discussions with Austal on the strategic path ahead.”

“My decision was not taken lightly and comes after extensive consultation and long and careful deliberation,” Chalmers said in a statement on 12 December. Hanwha will remain a minority shareholder under this proposal and cannot increase its shareholding above 19.9 per cent, he emphasised.

“This decision ensures there are greater protections for our Strategic Shipbuilder and the Government’s sovereign interests in Austal,” Chalmers added. “It is entirely consistent with FIRB’s unequivocal advice not to object to the proposal, subject to conditions. It incorporates advice from relevant agencies including the Department of Defence, the Department of Home Affairs, the Department of Foreign Affairs and Trade and our national security agencies.

“If the proposal goes ahead, it would be subject to a number of strict conditions relating to governance, and data information and security, including:

• Limits on Hanwha’s access to sensitive information
• Limits on the storage of sensitive information
• Stringent criteria on any Hanwha nominee to Austal’s board

“These conditions build on the strong safeguards that already apply to Austal Defence Australia as Australia’s Strategic Shipbuilder.”

Through its US shipyard in Mobile, Alabama, Austal also manufactures the Independence-class Littoral Combat Ship (LCS) for the US Navy along with the catamaran Spearhead-class Expeditionary Fast Transport supply ship. Importantly, Austal is now also building components in the USA for the US Navy’s Virginia-class submarines.

“Austal … is a key pillar of our plan to boost local manufacturing and industry capabilities and remains an essential part of our Future Made in Australia agenda,” said Chalmers. “This decision and associated conditions will protect our sovereign interests in this capability and ensure the company can continue to grow, invest, and deliver continuous shipbuilding in Western Australia.”