A view of Hyundai Heavy Indsutries’ shipyard in Ulsan. (Photo: HHI)

Hyundai Heavy Industries (HHI) is seeking to acquire Daewoo Shipbuilding & Marine Engineering (DSME). HHI’s acquisition of DSME will reshape the “Big Three” structure of the Korean shipbuilding industry into a “Big Two” format – HHI vs. Samsung Heavy Industries. All eyes will be on whether DSME will find a new owner, 19 years after the shipbuilder was listed into Korea Development Bank (KDB), a major credit bank of DSME, in 2,000.

Investment bank sources said KDB is in final negotiations to hand DSME over to HHI Group. Both sides were considering an option in which a new joint venture would be established through investment in kind, with Hyundai Heavy Industries Holdings’ 33.96 percent stake in HHI and KDB’s 55.7 percent stake in DSME.

Under the plan, HHI Holdings would be the biggest shareholder of the new corporate entity, with KDB being the second biggest shareholder. HHI’s capitalization is estimated at 10.226 trillion won. The value of HHI Holding’s stake in HHI stands at around 3.473 trillion won, while that of KDB’s stake in DSME amounts to about 2.1 trillion won. HHI Holdings and DSME each were scheduled to hold a board of directors’ meeting soon to approve the plan.

Korean shipbuilders have come under fire for staging cut-throat competition to win orders to improve short-term business performances, leaving them with snowballing losses. McKinsey & Company’s draft report commissioned by Korea Offshore & Shipbuilding Association recommended that Korea’s shipbuilding production should be dramatically reduced. It suggested tightening the Korean shipbuilding industry into one dominated by two companies.

Negotiations between HHI and KDB gained ground on the back of the government’s strong drive to restructure the industry. Some industry analysts said the government and KDB see now as a time to restructure the shipbuilding industry, which was showing signs of rebounding after bottoming out. An integration of HHI and DSME would lead to a rise in price competitiveness and the improving of credit on the global market, so it would make Korea in a better position to win orders, industry analysts said.

DSME began to see its business performance improve thanks to a rise in winning orders involving the mainstay business LNG carrier and NLCCs in 2018. HHI also showed signs of rebounding by landing two 158,000-ton crude oil carriers from European ship owners of late. Korean shipbuilders were making the most of the tarnished image of the Chinese shipbuilding industry, caused by an LNG carrier, built by a Chinese shipbuilding, which stopped operating due to an engine trouble last June.

HHI and DSME, ranked 1st and 2nd globally DSME has strengths of specializing in icebreaker and submarine segments, which is analyzed to give HHI a boon for ramping up its technology power.

Global ship owners tend to consider factors such as shipbuilders’ sales size, production capacity, and credit and if HHI and DSME join forces, they would have a greater competitive edge in many areas, industry analysts said.

HHI began to make a move as DSME recently solved the so-called Achilles’ heel of solving a dispute with Angola’s Sonangol and delivering two drillships. The dispute led to DSME’s fall into a liquidity crisis.

HHI Holdings’ decision to dispose of its stake in Hyundai Oil bank to Saudi Aramco may be construed as the former’s preliminary step to look forward to integration with DSME. HHI Group plans to raise 1.8 trillion won through the disposal.