Hanwha approved for bigger stake in shipbuilder Austal with conditions on sensitive info, says Jim Chalmers

Federal Treasurer Jim Chalmers has given approval for South Korean defence giant Hanwha to double its ownership of WA-based shipbuilder Austal to 19.9 per cent.

In a statement on Friday, Dr Chalmers announced his long overdue decision on the Hanwha application, saying it was “not taken lightly and comes after extensive consultation and long and careful deliberation”.

“This decision ensures there are greater protections for our strategic shipbuilder and the Government’s sovereign interests in Austal,” he said.

“It is entirely consistent with FIRB’s (Foreign Investment Review Board) unequivocal advice not to object to the proposal, subject to conditions.”

Under the application, Hanwha would remain a minority shareholder with 19.9 per cent, while limits would also be placed on Hanwha’s access to sensitive information and possible board appointments to the Andrew and Nicola Forrest-backed, ASX-listed Austal.

It would have to apply again to FIRB to increase its holding beyond the takeover threshold.

Austal shares fell two per cent to $6.28 after emerging from a trading halt.

With Hanwha likely to seek a board seat after the FIRB approval, Austal said that any request for a directorship or proposal from Hanwha to partner on projects would be carefully considered for associated “opportunities and risks”.

“Relevant factors which would need to be assessed would include feedback from design partners, the efficient running of the board and its meetings given its discussions of sensitive national security topics, potential additional governance required from the company, the claimed value from the commercial co-operation and of any Hanwha board nominee,” Austal said.

Last month, The West Australian revealed Tokyo had repeatedly expressed concerns about the South Korean group buying more of Austal, given the Perth-based shipbuilder will likely construct the Japanese-designed Mogami warships at Henderson next decade.

Austal gets almost 80 per cent of its revenue from the US, mostly through contracts to build ships for the US Navy at its shipyard in Mobile, Alabama.

It also has service centres in San Diego and a technology centre in Charlottesville, Virginia.

Austal’s US American operations could prove advantageous for Hanwha which is keen to strengthen strategic partnerships in the US and elsewhere amid a boom in the global defence and shipbuilding industries.

Hanwha tried to interest Austal in a $1 billion takeover last year, but was firmly rebuffed by the Australian group, which has consistently said it sees no benefit in being owned by the South Korean conglomerate.

Hanwha applied to move to 19.9 per cent of Austal after buying a 9.9 per cent stake in March.

The shipbuilder is now valued at $2.7b, its shares having leapt off the back of its growing order book and a boom in global defence spending.

There are sensitivities on either side of Dr Chalmers’ decision, with the Federal Government mindful of not offending regional defence allies in South Korea and Japan, while supporting development of a sovereign shipbuilding industry as it prepares to award billions of dollars in new naval defence contracts.

Under a strategic shipbuilding agreement with the Government, Austal — 19.3 per cent owned by the Forrests — is poised to share in $20b of contracts for the frigates and landing craft over the next 20 years.

But the Commonwealth deal comes with a so-called “poison pill” to ensure the Government can maintain control of a sovereign shipbuilding industry by taking over the company’s Henderson shipyard.