Australian Billionaire Andrew Forrest Eying Big Naval Shipyard

Over the past year, Australian billionaire Andrew “Twiggy” Forrest has quietly become the dominant shareholder of Austal Limited (ASB.AX), a naval shipbuilder listed by Defense News as the 75^th largest recipient of 2021 defense revenue.

As of August, Forrest owns over 15% of the on-the-move shipbuilder. Based in Western Australia, with a big backlog of government shipbuilding contracts and active shipyards in the U.S., the Philippines, and Vietnam, Austal is an underestimated asset. With the shipbuilder in hand, the Western Australian mining magnate, currently estimated by Forbes to be worth $16 billion, will be in a position to energize Western interest in shipbuilding.

As one of the first big corporate moves emerging from the “AUKUS” defense agreement between Australia, the United Kingdom, Forrest’s growing stake in Austal has big international implications. Even if Forrest declines to take an active role in managing Austal, it is an exciting development for shipbuilding observers worldwide.

Technically adept, media savvy, and with world leaders on speed-dial, Forrest is something new on America’s stodgy, dirty, and often-overlooked waterfront. It could be quite a refreshing change—the United States hasn’t seen as colorful and well-connected a shipbuilder since America’s World War II-era shipbuilding giants, Henry Kaiser and Andrew Higgins, pumped ship after ship into America’s arsenal.

An AUKUS Stock Play That Got Real:

Forrest is a relative newcomer to the shipbuilding business. As Australia mulled the AUKUS agreement, Tattarang Ventures, a branch of Forrest’s investment company, researched Austal, and, in July 2021, started to accumulate the shipyard’s stock.

Since the formal AUKUS announcement a year ago, Tattarang has quietly and relentlessly boosted their position in Austal. A modest 5% stake in April 2022 grew to a 7.5% position in May, then to a 13.8% holding by June, and finally, by early August, to a hefty 15.3% slice of the company. The stake has already made Forrest a small fortune, and even though Austal stock has increased by about 24% since July 2021, Forrest is showing no sign of taking any gains.

Given Austal’s current market capitalization of around $920 million, Forrest’s total investment is likely in the vicinity of $140 million.

Forrest knows Austal. He is already owner of SFM Marine, a small vessel maintenance company headquartered in the strategic Western Australian port of Henderson. As it happens, Forrest’s yacht-and-boat servicing company is located right next door to Austal’s headquarters, offering a prime foundation for expansion if Austal wants to grow their flagship shipyard. Conveniently for Forrest, both Austal and SFM Marine are located just across the bay from HMAS Sterling, home to Australia’s submarine fleet. It is a perfect place to build a forward maintenance facility for modern submarines, and an unmatched opportunity to get one of the first critical pieces of AUKUS-enabling infrastructure into place.

Forrest may not know shipbuilding quite yet, but he certainly knows the value of shipping and knows the importance of maintaining the organic capability to build and service vessels. After ordering a $720 million fleet of eight 260,000 ton ore carriers from China in 2014, Forrest has been quick to realize the economic utility of independent merchant fleets, quick to grasp the importance of secure sea lanes throughout Asia, and quick to understand that a geographically diverse set of non-China-owned shipyards will be an invaluable asset in the increasingly tense Indo-Pacific region.

Unlike many other shipbuilders, Forrest not only understands the geopolitical stakes wrapped up in maritime transport, but he has both the motivation and financial means to focus public attention on oft-overlooked logistical challenges at sea. After identifying the global risks posed by Russia’s Black Sea blockade of Ukraine, the Forrest Family’s Minderoo Foundation backed the first risky charter of grain from a Ukraine port since the February 2022 start of Russia’s disastrous “Special Operation.”

No other shipbuilder has such an ability to align his activism with his financial interests. As a major patrol boat supplier, Austal offers another easily-overlooked synergy with Forrest’s array of extracurricular activities. Forrest holds a Ph.D. in marine ecology, and his high-profile support of ocean conservation makes Forrest an ideal showman for Austal’s current set of government customers.

Austal’s Western Australian shipyard builds Guardian class fishery-enforcement vessels for distribution throughout Oceania. In the U.S., Austal’s subsidiary, Austal USA, just won $3.3 billion contract to build up to eleven of the U.S. Coast Guard’s future fishing patrol platforms, Heritage class Offshore Patrol Cutters. Even though that particular contract is delayed by a bid protest, it is very likely that Austal will be supporting government-related ocean conservation efforts for years to come.

Other Austal-built ships are getting in on the Coast Guard-oriented fishery-patrol mission as well. In August alone, two Austal-built Independence class Littoral Combat Ships participated in the Oceania Maritime Support Initiative, surveilling, stopping, and searching suspect fishing vessels throughout the deep Pacific. Not to be outdone, low-cost Austal-built Spearhead class expeditionary fast transport ships worked off Africa and in the Caribbean, supporting local maritime security capabilities.

On land, Forrest’s Minderoo foundation already backs the public case for increased Coast Guard investments. By funding the Global Fishing Index, supporting illegal fishing-related export control work, and advancing a host of other projects that bolster the case for a “rules-based maritime,” Forrest is already busy making the political “soft sell” for Austal’s current book of business. In essence, Forrest has taken old-school government lobbying and converted it into tangible investments for the public good.

A technological innovator, Forrest is already pushing the maritime industry towards a greener future, irritating established players by constantly urging better standards and lower emissions. But the low-emissions gadfly walks the walk. He is aiming to convert both his iron-ore merchant fleet and his supporting tug fleet so the can run on zero-carbon green ammonia, derived from hydrogen. If current plans hold, an offshore supply ship test-bed in Forrest’s personal fleet will be operating on ammonia later this year, while his eight ore carriers are set to receive energy-saving hull coatings, variable frequency drives and propeller caps.

By building a stake in a shipbuilder already busy pushing ahead with robotic vessels and low-to-zero-emission ferries, Forrest now has an opportunity to extend this work, partnering with a range of state-based innovators. America’s Advanced Research Project Agencies would relish a public partner willing to make high-profile technological bets in the maritime.

Even though Forrest is hot in the the pursuit of green hydrogen, Forrest is also surprisingly well-positioned to become a vertical integrator of nuclear power. If he wants to do it, Forrest has all the tools to mine uranium and then build nuclear-power-ready ships and floating power plants capable of generating alternative maritime fuels. Forrest’s business empire won’t likely refine the fuel and make reactors, but they’ll be able to supply everything else.

All these diverse interests come together with AUKUS. If Forrest scoops up the rest of Austal, he can do a lot to drive AUKUS forward. On one hand, he could offer up Austal to help test-run the complex procedural bureaucracy backing many of the collaborative concepts detailed in the AUKUS Agreements. With Austal USA already starting to support submarine manufacture, Forrest can get a head-start in making the necessary investments at Austal’s Henderson shipyard to both maintain and upgrade his iron ore fleet and to build up a trained workforce ready to safely conduct basic nuclear submarine maintenance. Or, potentially, he could push the Australian government to collaboratively build an Australian variant of the Austal USA built Heritage class Offshore Patrol Cutter, Independence class Littoral Combat Ship, or the Spearhead class Expeditionary Fast Transport, working through America’s tough tech transfer and industrial security protocols before attempting to get into the complexities of submarine work

With AUKUS, there is a lot to do, and Forrest, if he snaps up Austal, has the energy and resources to help get it done.

Will Forrest Take The Plunge?

Forrest’s big stake in Austal reduces a good bit of Austal’s corporate risk. Forrest’s vast political and economic resources also opens a lot of options as Austal looks for growth opportunities throughout the Indo-Pacific. But it’s not going to be easy.

Austal is still facing down a complex international investigation into financial reporting problems and other irregularities. Thus far, the investigation has claimed both Austal USA’s former President, Craig Perciavalle and Austal Limited’s former Chief Executive Officer, David Singleton. Others are still in jeopardy. If regulators aren’t content with merely monetary fines (Austal and Australian regulators are bringing a proposed $650,000 (AUS) settlement to court “shortly”), and orders John Rothwell, the company founder and current non-executive Chairman for both Austal and Austal USA, to walk away from the business, Forrest’s management team is well-positioned to step in for Austal’s aged founder.

Bringing Forrest in as a company leader would do Austal well. Forrest’s popularity throughout the Australian government and his obvious commitment to Australian craftsmanship can certainly help Austal reset an image battered by repeated and well-publicized quality control issues aboard Austal’s Australian-built patrol craft.

By engaging, Forrest can help the new Australian government develop their Defense Strategic Review, helping to reset the contracting approaches that exacerbated Austal’s quality control challenges at Henderson. It has been a corrosive dynamic. The Australian government’s longstanding habit of ordering small production runs of new ship classes gave Austal no guarantee of ongoing business. And with little incentive to invest in long-term training and sustainment, government buying habits fostered a tendency on Austal’s part to gouge as much as possible out of each contract. It wasn’t a recipe for long-term success, but, with Forrest’s influence, things could change. Then again, if Henderson products continue to run into operational headwinds, Australia’s media will gleefully use the shipyard’s problems to tear into Forrest’s reputation.

The Australian oligarch might be able to do even more by keeping the operation at arms-length. Outside of buying the entire company now, Forrest may have no other choice than to watch from the sidelines; the vagaries of Australia’s corporate regulations enable companies to hold large shareholders at arms-length for some time.

Should Forrest take the plunge, purchasing the company, American rules limiting “Foreign Ownership, Control or Influence” will kick in, forcing Forrest to comply with the Special Security Agreements put in place to allow Austal’s U.S. subsidiary to take on classified contracts. And while the security arrangement is largely a manageable operational and bureaucratic challenge, America’s regulations are always a vexing constraint for outgoing, “hands-on” bosses. Forrest, if he is unable to advocate for his favorite maritime causes, will chafe under the American restrictions.

To avoid those problems, Forrest may want to assign a set of strong managers to the Austal USA board and keep himself out of day-to-day decision-making at Austal’s U.S. facilities. That way, he can stay out of the operational fray while continuing to engage in the big and broad policy discussions that he likes. Nobody will mind if Forrest presses for more Coast Guard funding, stronger fisheries, undersea mining regulations, and more high-tech on the waterfront. He’ll only face jeopardy if he starts spending a ton of time in Austal’s U.S. shipyards, micromanaging contracts and pressuring lawmakers.

Forrest may also have a good business reason in keeping Austal at arm’s length. China is Forrest’s primary iron ore customer. Even though China is desperate for steel, China’s communist government may not appreciate doing business with an Australian oligarch whose other investments are helping make AUKUS and a “rules-based maritime” a reality.

But then again, Forrest made his fortune by taking risks, and the upside of making big bets on the future of Western shipbuilding may outweigh the prospect of official Chinese umbrage.