Hanwha Aerospace (Hanwha Aero) announced it would raise 3.6 trillion won through a paid-in capital increase, with a significant portion of the funds expected to be used for overseas mergers and acquisitions (M&A). At the end of last year, Hanwha Aerospace had 1.375 trillion won in cash and cash-equivalent assets; however, Hanwha Energy, which is 100% owned by Kim Seung-yeon, chairman of Hanwha Group, spent 1.3 trillion won to buy Hanwha Ocean's equity, resulting in depleted cash reserves.
Hanwha Aerospace stated it will invest the funds secured through the paid-in capital increase in overseas defense at 1.6 trillion won, domestic defense at 900 billion won, overseas shipbuilding at 800 billion won, and drone engines at 300 billion won. During a corporate presentation for institutional investors, it was revealed that 800 billion won allocated for 'overseas shipbuilding' would be invested in Australian shipbuilding and defense firm Austal.
Hanwha Group is making a concerted effort to acquire Austal, led by Vice Chairman Kim Dong-kwan. On the 17th, Hanwha Systems and Hanwha Aerospace disclosed that they each invested 202.7 billion won and 64.2 billion won in the Australian local subsidiary 'HAA No.1 PTY LTD.' The Australian subsidiary used these funds to purchase 9.9% of Austal's equity in the over-the-counter market. The acquisition price was 183.4 million Australian dollars (approximately 165.5 billion won).
Subsequently, a total return swap (TRS) contract regarding the additional 9.9% equity was signed through an Australian local securities firm. Hanwha is currently undergoing review by the Australian Foreign Investment Review Board (FIRB) regarding the Austal investment. If it receives institutional approval, Hanwha plans to convert the equity established through the TRS contract into actual ownership.
In this case, Hanwha's equity in Austal could increase to a maximum of 19.8%, surpassing Tata Marine Ventures (17.09%) to become the largest shareholder in Austal. Hanwha envisions securing a seat on Austal's board, with Vice Chairman Kim Dong-kwan representing the company. However, there are projections that gaining a seat on the board may not be easy, particularly as Austal's CEO, Paddy Gregg, is reportedly strongly opposed to Hanwha joining the board.
On the 12th, Austal completed a paid-in capital increase of 200 million Australian dollars (approximately 184.6 billion won), in which the largest shareholder, Tata Marine Ventures, participated in the increase according to their equity holdings, showing their commitment to management. Hanwha did not participate in this stock offering.
Previously, Hanwha attempted to acquire Austal but abandoned the effort after the board strongly opposed it and rejected the equity purchase proposal. The uncertainty of approvals from U.S. and Australian regulatory authorities was also a factor making the acquisition challenging. Last year, Austal's board reportedly ended negotiations by insisting on a clause that imposed a penalty of $5 million (approximately 730 million won) if U.S. and Australian authorities refused approval.
A Hanwha representative noted, "We are considering ways to collaborate by gaining access to the Austal board. If we strategically collaborate with Austal, we anticipate that the capital raised from the paid-in capital increase will be used for facility investments and other overseas projects."
Austal operates shipyards in Australia, the United States, the Philippines, and Vietnam. Hanwha appears to believe that Austal USA is necessary for entering the U.S. Navy maintenance, repair, and operation (MRO) market. Austal USA has experience building the U.S. Navy's Independence-class littoral combat ship (LCS) and the U.S. Coast Guard's Expeditionary Fast Transport (EPF) vessels and managing MRO projects for small and medium-sized vessels.