Analysis - South Korea, China battle to be king of LNG shipyard
Monday, 16 January 2012 | 00:00
The battle between South Korea and China to own Gaztransport & Technigaz, a firm that develops systems for storing liquefied natural gas (LNG) on ships, could ultimately be one of survival for Korean shipbuilders after the country lost most of its market share in the building of standard ships to China.
South Korean shipbuilders could take the unprecedented step of joining forces to compete against China in acquiring the French firm, with the winner poised to dominate the lucrative LNG carrier market for years.
Shipbuilding is a key industry for exporting nations such as South Korea, China and Japan, employing thousands of workers and providing transport stability to domestic businesses.
"Korean shipbuilders, whether one of them or a team, must buy GTT. It is imperative. They can't let China take the company," said a source with knowledge of the matter.
Daewoo Shipbuilding & Marine Engineering, Hyundai Heavy Industries, and Samsung Heavy Industries are considering a 1 billion euro (826 million pound) bid for GTT, sources familiar with the matter told Reuters on Monday.
STX Group's shipbuilding unit is also considering joining the bid, sources said. The Korean firms are the world's four largest shipbuilders by orderbook.
"Working-level officials from (Korean) shipbuilders have had meetings to discuss whether they can take over GTT together since the stakes could be overwhelming for a single shipbuilder," said a second source with knowledge of the matter.
GTT is the market leader in building membrane containment systems to safely store liquefied natural gas (LNG) on ships, licensing the technology to shipbuilders for around $10 million per vessel. South Korea is trying to develop its own technology for LNG cargo containment but is far behind GTT.
Chinese shipyards, which dominate the market for building simple dry bulk ships and oil tankers, desperately want to expand into more complex vessels like LNG carriers, but most do not have the technology to compete with their more advanced South Korean rivals.
Shanghai's Hudong-Zhonghua Shipbuilding signed orders to build four LNG carriers worth about $1 billion in July, its first major LNG export order.
Despite that order, Korean shipyards still dominate with around 90 percent of the LNG carrier market.
France's GTT, formed in 1994 by the merger of the two main players in its field, would likely erase China's problem and place it on equal footing with South Korea.
"If China takes over GTT, it could raise royalties that would burden Korean shipbuilders. So in regards to profitability and the race for ship orders, the GTT takeover battle is significant," said Richard Park, an analyst at Korea Investment & Securities.
Sources familiar with the matter told Reuters in November that GTT's shareholders -- GDF Suez, the world's biggest utility by market value, French oil company Total and U.S. private equity fund Hellman & Friedman -- were planning to sell their stakes.
A formal offer has yet to be announced and no Chinese shipbuilder has indicated its interest, although analysts believe a bid from China was inevitable.
If the South Korean builders follow through on a joint bid, industry experts say this would be the first time the three companies, which are normally fierce rivals, have joined forces against a common foe.
China in 2009 surpassed for the first time long-time leader South Korea as home to the world's largest shipbuilding orderbook.
Korean shipyards are expected to have regained the top spot in 2011 after shipowners ordered more LNG tankers and other complex vessels, straying away from the "cookie-cutter" dry bulk carriers and oil tankers in which China specializes.
Orders for capesize dry bulk carriers fell nearly 60 percent year-to-date in the first half of 2011, while demand for LNG tankers surged 11-fold over the same period, according to shipbroker Clarksons.
Korean shipbuilders received $44 billion of new orders in the 12-month period ending in November 2011, sharply higher than the $15 billion taken by China, analysts said.
A typical LNG tanker costs $200 million, nearly four times more than a capesize vessel.
"It is not strange at all that Korean shipbuilders are talking about joining forces because they have common interests -- checking China," said Lee Jae-won, analyst at Tong Yang Securities. "I haven't seen such a case before (of the four Korean shipbuilders teaming up), partly because it would be the first time that this type of company is put on sale."