2019 Jan 31

Hyundai Heavy Industries in Talks to Buy DSME

South Korea's "Big Three" shipbuilders may soon become the "Big Two," as Hyundai Heavy Industries (HHI) has reportedly expressed interest in taking over state-owned Daewoo Shipbuilding and Marine Engineering (DSME). The move would consolidate HHI's position as the top South Korean shipbuilder and create a new industry giant.

DSME experienced severe financial distress during the shipbuilding downturn in 2015-2017. After a series of government bailouts and debt-for-equity swaps, its biggest lender became its biggest shareholder. State-run policy bank KDB now owns a 55 percent majority stake in DSME, and it is reportedly in talks with HHI for a sale. KDB is expected to consider a formal offer from HHI at a board meeting scheduled for March 31. "It is not the stage where we can unveil specifics,” an official at Hyundai Heavy Industries told Yonhap - though more details may emerge at HHI's next earnings call, which is scheduled for tomorrow.

The Korean government has stated its intention to find a buyer for DSME since 2017, and the Wall Street Journal reports that HHI has been in talks with KDB for a purchase for about one year. DSME's CEO, Jung Sung-leep, has already signaled that he is positioning his firm to be sold, and he has endorsed a "Big Two" organizational structure for the Korean shipbuilding market. “I will focus on making Daewoo Shipbuilding a small but firm company ahead of a sale,” Jung said at a press conference last November.

A combination of DSME and HHI would be better-positioned to compete with Chinese rivals, notably state-owned conglomerates CSSC and CSIC. Taken together, these two companies have annual revenues of more than $75 billion - more than the total for Korea's "Big Three" shipbuilders combined.


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