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Hyundai seeks EU’s conditional approval for Daewoo acquisition

Hyundai Heavy Industries (HHI) is seeking conditional approval from the European Union for its proposed acquisition of the ailing Daewoo Shipbuilding & Marine Engineering (DSME), sources and officials familiar with the issue said.

In 2019, HHI requested approval for its planned acquisition of DSME to China, Kazakhstan, Singapore, the EU, Japan and South Korea. As the acquisition would help HHI gain bargaining power both in terms of the rates and number of shipping routes, the company needs approval from six entities where the shipbuilding industries would be significantly impacted by the deal. So far, China, Singapore and Kazakhstan have given the green light.

Japan completed its first review of the proposal back in March 2020, while the EU begun its second assessment in December 2018. In Korea, HHI requested the Korea Fair Trade Commission (KFTC) to approve its acquisition plan in July 2019, but no visible progress has been made.

Meanwhile, officials say the EU is worried about monopolization of the liquefied natural gas (LNG) industry if HHI acquires DSME.

Because the EU holds the key for the entire process in terms of the region’s market influence and size, HHI was said to have offered the EU its remedy plans to ensure that the merged entity won’t hurt fair market competition.

While HHI vowed to freeze the cost of LNG ships over a certain period and clarified its intention to transfer some of its LNG vessel-related tech in exchange for receiving EU approval, its offer reportedly failed to impress the EU.

“HHI and KDB have switched their strategy aiming to receive EU conditional approval for the acquisition by the year end,” a senior executive at a local investment bank said. The EU said the delay in the review process was due to the worsening COVID-19 situation. KDB is DSME’s largest shareholder.

The continued delay in the EU’s decision has worsened the situation for KDB and HHI as DSME’s profitability continues to slump. DSME’s first-half sales dropped 44.7 percent year-on-year. KDB Chairman Lee Dong-gull plans to complete the acquisition process before President Moon Jae-in ends his term next March, said banking sources.

As part of its next appeal to the EU for conditional approval, HHI is considering selling off some of its assets, which many experts expect to be Hyundai Mipo Dockyard and Hyundai Samho Heavy Industries, as a remedy to ease the EU’s worries of a potential monopoly as well as competition relief for the combination of the two major LNG tanker businesses.

In order to keep the momentum of the review process alive, KDB, HHI and its sub-holdings company Korea Shipbuilding & Offshore Engineering (KSOE) extended their investment contract for an additional three months recently to Dec. 31 of this year, marking the fourth extension since the contract was inked in March 2019.

On a related note, opposition to the acquisition is growing among the DSME union and Geoje City, located in South Gyeongsang Province where DSME operates dockyards and manufacturing facilities.

As a rare action, the KDB chief showed his dissatisfaction with the KFTC’s continued muted stance regarding the issue, urging the country’s top antitrust regulator to actively intervene in the stalled process. But the point is any active intervention for the process could lead to “fairness” issues in terms of preferential treatment for South Korean companies, the core factor behind the KFTC’s quietness on the issue.

“When EU competition authorities try to regulate big tech platforms such as Amazon, Google and Facebook, the U.S. competition authorities protect them. But our country just sits back and waits until other countries make their decision, which is unfortunate,” Lee told reporters recently.

“We are doing all we can and waiting for approval from the EU,” a KSOE official said.
Source: The Korea Times

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