(Bloomberg) -- Shares of Australian shipbuilder Austal Ltd. climbed after a unit of Hanwha Aerospace Co. became a substantial shareholder of the US Navy contractor, as South Korea’s top defense firm aims to bolster its foothold in America.
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Austal’s stock rose as much as 9.7% in Sydney on Tuesday after a subsidiary of Hanwha acquired a 9.9% stake in the firm and said it aspires to increase the holding to 19.9%. The stake purchase is aimed at strengthening strategic partnerships in the US and elsewhere amid the boom in the global defense and shipbuilding industries, Hanwha said in a statement.
“Hanwha’s Austal stake acquisition, and bid for further acquisitions of shares, signal’s the company’s ambition to broaden its global reach, particularly in the US,” said Bloomberg Intelligence analyst Eric Zhu. The Australian shipbuilder’s American operations could be an “advantageous asset for tapping into US shipbuilding needs, given the administration’s focus on the sector,” he said.
Hanwha purchased 41.2 million Austal shares at A$4.45 per share, according to an exchange statement, a 16% premium from Monday’s close.
US President Donald Trump’s shift in traditional security alliances has been driving a new commitment to defense spending and training the spotlight on Asian contractors which are able to deliver weapons faster and cheaper than their rivals. Hanwha Aerospace shares have more than doubled this year and is among the top gainers on Asia’s equity benchmark.
With the stake, Hanwha is vying to win trust and contracts from the US Navy, said Jung In Yun, chief executive officer at Fibonacci Asset Management Pte. It’s a “win-win” for both South Korea and Australia as the two nations could be in a better position to negotiate a military deal with America, he added.
Austal gets almost 80% of its revenue from the US, according to data compiled by Bloomberg. Its American unit is based in Mobile, Alabama, with service centers in San Diego and a technology center in Charlottesville, Virginia, its website said.
“Australia probably has the technology that South Korea does not have, such as submarine technology,” Yun said. “The US could lower the prices by letting Australia and South Korea compete. But since they joined hands, they are in a better position for negotiations.”
Operating US shipyards have not been profitable as America’s shipbuilding industry has virtually collapsed over the last generation, with years-long delays and cost overruns making it hard for the Navy to build the ships and submarines it needs. Hanwha in December completed its purchase of a former Navy shipyard in Philadelphia through its unit Hanwha Ocean Co.
Hanwha unsuccessfully attempted to buy Austal last year. In April, the Korean firm said no further discussions were underway, though it was working to continue talks with Austal’s management and board on its acquisition proposal.
--With assistance from Youkyung Lee.
(Updates with additional detail throughout)
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