Will Samsung Heavy lose ground to Hanwha, HD Hyundai?

Samsung Heavy Industries is facing skepticism about its competitiveness, after its rivals decided recently to acquire manufacturers of engines for ships, in order to vertically integrate their shipbuilding supply chains, according to industry officials.

Although the shipbuilding subsidiary of Samsung Group seeks to survive through its capability of building higher value-added offshore plants, industry officials point out that Korea’s shipbuilding industry could be reorganized in the long run to be under the leadership of Hanwha and HD Hyundai.

Last Thursday, HD Hyundai’s subsidiary, Korea Shipbuilding & Offshore Engineering, reportedly became the only participant in the main bid to acquire a 47.8 percent stake in STX Heavy Industries from Pinetree Partners, a local private equity firm (PEF). This came as Socius, another PEF that participated in a preliminary bid to acquire STX Heavy, decided to acquire Casco, a manufacturer of castings for ship engines, from Pinetree.

Hanwha, which is supposed to acquire Daewoo Shipbuilding & Marine Engineering (DSME) during the first half of this year, was once mentioned as a potential buyer of STX Heavy. However, the conglomerate dropped out of the race after Hanwha Impact signed an agreement last month to acquire a 33 percent stake in another ship engine manufacturer, HSD Engine, from Inhwa Precision.

“By integrating technical skills of HSD Engine and DSME, we will enhance our competitiveness in the construction of ships equipped with eco-friendly engines,” a Hanwha official said.

HD Hyundai also seeks to utilize STX Heavy to diversify its portfolio into small and medium-sized engine firms and create synergy effects with the group’s shipbuilding subsidiaries.

“We will offer higher fair values to companies that are likely to create synergy effects with our subsidiaries,” HD Hyundai President Chung Ki-sun told reporters on the sidelines of the Consumer Electronics Show in Las Vegas in January.

In contrast, Samsung Heavy has reiterated that it will continue to outsource the supply of engines from HSD Engine, which was established in 1999 after a merger between Doosan’s engine unit and Samsung’s spun-off engine manufacturing business.

The shipbuilder has also dismissed concerns over possible engine supply instability following Hanwha’s acquisition of HSD Engine, saying that the engine manufacturer has produced enough engines for multiple shipbuilders.

HSD Engine’s partnership with Samsung Heavy, however, could weaken, if the engine supplier focuses more on developing eco-friendly engines in collaboration with Hanwha.

“If a shipbuilder owns an engine manufacturer, it can hold a dominant position in terms of its transition to eco-friendly fuel,” Korea Institute for Industrial Economics & Trade researcher Lee Eun-chang said.
Source: The Korea Times