Hyundai Heavy Industries, the world’s biggest shipbuilding group, has announced a share swap deal worth N2.1 trillion won ($1.98 billion) to take over second-ranked Daewoo Shipbuilding & Marine Engineering (DSME) and create a global heavyweight, controlling over 20 per cent of the market.
The move comes as the worldwide shipbuilding sector recovers from a global economic downturn that led to massive losses, widespread job cuts and, in 2017, the $2.6 billion bailout of South Korea’s Daewoo Shipbuilding & Marine Engineering Co Ltd.
State-funded Korea Development Bank (KDB) owns 55.7 per cent of Daewoo, and has said it intends to sell the stake and consolidate the country’s three biggest shipbuilders – which includes Samsung Heavy Industries Co. Ltd – into two.
The combination of two of the giant shipbuilders would ease competition and excess capacity, which have depressed ship prices, KDB Chairman Lee Dong-gull said at a news conference.The deal will “raise the fundamental competitiveness of Daewoo, at a time when the threat from latecomers in China and Singapore is growing,” Lee said.
Hyundai and Daewoo hold a combined market share of 21.2 per cent, followed by Japan’s Imabari Shipbuilding with a 6.6 per cent, showed data from Clarksons Research.
Lee said it would take several months to gain approval from antitrust regulators from related countries. He said the size of the resulting entity’s market share would not be detrimental to the interests of customers. Daewoo will also receive liquidity support of 2.5 trillion won ($2.25 billion) from KDB and Hyundai, Hyundai said in a stock exchange filing.
KDB also said it would approach Samsung Heavy to gauge any interest in taking over Daewoo.A Samsung Heavy spokesman said it has received a proposal from KDB and that it needs to review the matter.
Daewoo shares rose as much as 22 per cent on Thursday, before ending up 2.5 per cent. Those of Hyundai Heavy Industries Holdings Co. Ltd and unit Hyundai Heavy Industries Co. Ltd fell about four per cent on concern about a high purchase price, analysts said.
Meanwhile, Samsung Heavy shares ended up 2.5 per cent, as investor concerns of it bidding for Daewoo eased.“Consolidation is good for the industry, but not for the company that buys the stake,” said analyst Um Kyung-a at Shinyoung Securities, citing overlapping businesses between Hyundai and Daewoo.
