Shipbuilding boom could hinder KSOE acquisition of DSME

Korea Shipbuilding & Offshore Engineering’s (KSOE) planned acquisition of Daewoo Shipbuilding & Marine Engineering (DSME) is coming into question as the recent shipbuilding boom could raise hopes of DSME recovering financially on its own.

The global shipbuilding industry has seen a slump for close to a decade but seems to have picked up steam again with rising demand for eco-friendly vessels. Domestic shipbuilders have reached over 70 percent of their sales goals for the entire year just in the first two quarters.

Hyundai Heavy Industries and its sub-holding company KSOE procured a total of 122 vessel deals worth $11.99 billion, which is a drastic increase from just 29 shipbuilding contracts worth $2.42 billion last year.

However, KSOE is not all smiles, as opposition to the scheduled acquisition is rising with hopes the shipping sector could enter a super cycle in the near future.

In addition, the EU’s Competition Commission has yet to resume its probe into the proposed $1.8 billion deal between the two firms, blaming the COVID-19 pandemic as the reason for the postponement. The commission suspended the probe three times last year in January, March and July.

“Initially, the EU was supposed to make a decision by June 30 this year, but the date has been pushed back due to the pandemic,” a KSOE official said.

The EU antitrust watchdog believes the acquisition will hinder market competition in the shipbuilding field for liquefied natural gas (LNG) and liquefied petrochemical gas (LPG) vessels, over concerns about a possible rise in ship prices that could hurt European companies’ competitiveness in the construction of cargo ships.

The deal needs regulatory approval from the EU and five countries ― Korea, China, Kazakhstan, Japan and Singapore. Kazakhstan, Singapore and China have already approved the deal, but the EU and Japan have yet to deliver their determinations.

“There needs to be approval from the EU and Japan. Japan does not seem like a big issue but we will have to wait the EU’s decision. There have only been a few rejections in the past,” a major shipbuilding company official said.

In March 2019, Hyundai Heavy Industries, a predecessor to KSOE, signed the deal to take over a 55.72 percent stake in DSME, which would make it the world’s biggest shipbuilder with a 21 percent share of the global market.

However, during a recent joint press conference, Changwon City Mayor Huh Sung-moo, Tongyeong Mayor Kang Seok-ju and Geoje Mayor Byun Gwang-yong strongly opposed the KSOE and DSME acquisition.

“The shipbuilding industry is entering a super cycle. The Korean government decided to sell DSME as the industry fell into a recession, but since it is starting to recover it needs to reassess DSME issues,” they said.

Some industry watchers believe the acquisition could benefit the local shipbuilding industry in the long run as the top three shipbuilders are Korean and the acquisition could ease the cutthroat competition and overlapping investments, making the sector more compact and competitive.

In order to acquire DSME, Hyundai Heavy Industry Group split Hyundai Heavy Industries into two entities ― by reorganizing Hyundai Heavy Industries and establishing KSOE, which acts as a sub-holding company that governs shipbuilding units under the group.

KSOE currently manages the group’s three shipbuilding units ― Hyundai Heavy Industries, Hyundai Mipo Dockyard and Hyundai Samho Heavy Industries.

Once the acquisition of DSME gets the green light, Hyundai Heavy Industries Group will have four shipbuilders under its wing.

President Moon Jae-in’s administration also highlighted the boom in the industry and vowed to help revive the local shipbuilding industry through the new momentum.

The country announced measures to nearly double the revenue in the domestic marine shipping sector by 2030 and help local shippers overcome the heightened competition amid the pandemic.

Under the new vision, the country’s marine shipping capacity is expected to reach 1.5 million twenty-foot-equivalent units (TEUs) by 2030, nearly doubling from 780,000 TEUs estimated in 2020.

“The maritime shipping industry will create opportunities for growth through enlargement of container vessels, transition to eco-friendly vessels and ports, and digitization of the maritime shipping industry,” President Moon said during a ceremony in Busan for the launch of the Hanul, HMM’s new 16,000-TEU class container ship.
Source: The Korea Times