Austal shares fall after Treasurer greenlights higher Hanwha stake

Austal Ltd (ASX: ASB) shares have fallen on news that a foreign shipbuilder has been granted permission to raise its stake.

Treasurer Jim Chalmers and the Foreign Investment Review Board (FIRB) have approved an application lodged in June by HAA Pty
Ltd, an entity controlled by South Korean shipbuilder Hanwha Corp, to buy up to a 19.9% stake in Austal.

That's just below the 20% threshold at which a shareholder must make a formal takeover offer under the Corporations Act.

The Austal share price is currently $6.27, down 2.34% on Friday, while the S&P/ASX 200 Index (ASX: XJO) is up 1.1%.

Austal is Australia's largest defence exporter. It owns shipyards in the US, Australia, Vietnam, and the Philippines.

Its clients include the Australian Navy and the US Navy.

Hanwha is a diversified Fortune 500 company with interests in defence, aerospace, clean energy, finance, and retail.

Hanwha already owns 9.9% of Austal plus a further 9.9% economic interest through a cash-settled total return swap.

This makes Hanwha one of Austal's largest shareholders, and it's been a long-time suitor for the Australian defence shipbuilder.

In fact, Hanwha tried to buy Austal outright last year when it offered $2.825 per share in cash to take over the company.

Why did the Treasurer approve Hanwha's request?

A statement from Chalmers said the approval is subject to strict conditions.

These include Hanwha's access to and storage of sensitive information.

There are also conditions regarding who Hanwha may nominate to the Austal board, if Austal were to accept any nomination.

In a statement, Chalmers said:

My decision was not taken lightly and comes after extensive consultation and long and careful deliberation.

It follows a thorough and robust process that took account of all the relevant economic, national security and other national interest issues.

Hanwha would remain a minority shareholder under this proposal and cannot increase its shareholding above 19.9 per cent.

This decision ensures there are greater protections for our Strategic Shipbuilder and the Government's sovereign interests in Austal.

In August, the Government signed the Strategic Shipbuilding Agreement with Austal after naming it our sovereign shipbuilder for Tier 2 surface combatant vessels.

Chalmers said the agreement remained an essential part of the Future Made in Australia agenda.

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.

What did Austal management say?

In a statement today, Austal CEO Paddy Gregg said:

Treasurer Chalmers has made his decision and we respect that decision.

With the clarity provided by this decision, the Board and management are firmly focused on delivering value for all Austal shareholders as Australia's sovereign shipbuilder under the Strategic Shipbuilding Agreement (SSA), a major contributor to the US defence industrial base, and with significant growth opportunities at our US and Australasia operations.

Will Hanwha get a seat on the board?

Hanwha has previously indicated that it would seek to partner with Austal on various opportunities and also seek a board position if granted approval to raise its stake to 19.9%.

Today, Austal said:

The Austal board will closely review the opportunities and risks associated with those partnership and board position requests, should they be made officially, before it determines whether this would deliver demonstrable benefits for all Austal shareholders.

Austal shares double in 2025

Austal shares have ripped in 2025 amid the global megatrend in rising defence spending.

The Austal share price is up 102% in the year to date.

The industrials stock entered the benchmark ASX 200 at the June quarter rebalance.

For FY25, Austal reported a record $1.8 billion of revenue and EBIT of $113 million.

Its EBIT guidance for FY26 is $135 million, which would be a record for the company.

Austal's order book is currently worth more than $13 billion.

In October, Austal executed a US$100 million loan agreement from Export Finance Australia (EFA).

EFA is the Australian Government's export credit agency.

Austal will use the funding for the construction of vessels for the US Navy and US Coast Guard at its Alabama shipyard.

In March, Austal conducted a $200 million institutional placement to fund the expansion of its Alabama shipyard.

The post Austal shares fall after Treasurer greenlights higher Hanwha stake appeared first on The Motley Fool Australia.

Motley Fool contributor Bronwyn Allen has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has positions in and has recommended Austal and Macquarie Group. The Motley Fool Australia has positions in and has recommended Macquarie Group. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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