Hanwha in advanced talks over arms production for Saudi Arabia

Hanwha Aerospace Co. is in advanced discussions with Saudi Arabia over potential arms collaboration as the Middle East becomes the company’s main focus, according to the head of its global defense business. 

The burgeoning opportunities in the region are a major reason South Korea’s largest defense contractor decided to announce a share-sale plan last month to raise funds, said Michael Coulter, who was named global defense president and chief executive officer at Hanwha at the end of last year.

“We’re in discussions both in Saudi Arabia and the United Arab Emirates right now about programs that will create capacity in the Middle East, that addresses sovereign” issues, and also helps address security threats, Coulter said in an interview with Bloomberg. “There’s a real opportunity for us to meet security challenges in the Middle East through local facilities.”

Hanwha has been one of the biggest beneficiaries from the surge in global demand for ground weapons following the outbreak of wars in Ukraine and the Middle East. The company’s shares have rallied almost 30-fold over during the past five years, and it’s Asia’s top-performing stock this year. Known for its ability to deliver weapons faster and cheaper than rivals, the firm’s flagship weapons include the K9 self-propelled howitzer.

The company’s shares fell 2.1% Tuesday while the benchmark Kospi was little changed. 

Hanwha is still deciding on the exact form of its involvement in Saudi Arabia, but it may be able to announce an agreement later this year, said Coulter, a former U.S. navy officer. 

“We have not come to full decision yet on whether it’s facility in Saudi Arabia, or a joint venture, or a partnership, or we’re supporting a Saudi defense company, so that’s that but the market demand is there,” he said.

Hanwha’s overtures come as Saudi Arabia is investing trillions of dollars in a plan to develop the non-oil economy, including a goal to localize 50% of its military spending by 2030 under the plan it has called Vision 2030.

Middle East arms sales are a sensitive topic for South Korea as the country seeks to balance its ties with Arab states and its relations with its sole treaty ally the U.S., which has longstanding security relations with Israel.

Controversial sale

Hanwha earlier this month trimmed the size of its planned share sale to 2.3 trillion won ($1.6 billion) from an original 3.6 trillion won, following pushback from investors and financial authorities. The Financial Supervisory Service has also objected to its revised plan.

The decision to reduce the offering showed “a very responsible willingness by a company to listen to its investors and shareholders,” Coulter said. 

“Yes, there’s a potential for a slight dilution in the near term, but look at our track record, look at the market opportunity, we’ve walked everybody through where we’re making the investments and the return on those investments from a business standpoint,” he said. 

Europe plans

Hanwha is also in talks with a number of Western European nations about how it may help them increase their arms-making capacity in the face of rising global instability.

“We’re not intent on coming in and taking over and displacing European partners,” Coulter said. “We’re talking with governments, but we’re also talking with industry and saying where have you invested? Where have you not invested? Where can we be a partner?”

Coulter said he was optimistic the U.S. and South Korea will reach a deal that will avert a protracted trade dispute stemming from the Trump administration’s threat of higher tariffs.

“We are very confident that the two governments are going to come to resolution,” he said.

“There is a huge U.S. Army presence here. We have U.S. Navy ships in our shipyards here in Korea. So our governments are talking through that. I’m cautiously optimistic that will pan out and it won’t become a political issue.”

This story was originally featured on Fortune.com