Friday, February 1, 2019

Korean Shipbuilders Aim at Consolidation to Fight Off Chinese Yards

Daewoo and Hyundai Look Set to Merge - but Unions Object
Shipping News Feature
SOUTH KOREA – Shipbuilding, once in the van of the country's drive to industrial expansion, is now in a parlous state with China taking an ever larger slice of what was a lucrative market. Korea possesses a wealth of talent but is winning insufficient orders to maintain primacy in an industry that demands enormous overheads and now it looks as if consolidation by two of Korea's most iconic names is on the cards.

Unions are up in arms after the largest shareholder in Daewoo Shipbuilding and Marine Engineering (DSME), the Korea Development Bank (KDB), announced it had signed a conditional deal with Hyundai Heavy Industries (HHI) Group to sell off the troubled company's stock. It is believed KDB also made a similar approach to the country's other big player, Samsung Heavy Industries.

Unions representing workers at both Daewoo and Hyundai have said the deal cannot proceed if there are staff reductions, something which would appear inevitable given the state of the market, with just two Chinese state supported enterprises exceeding the whole of Korea’s recent tonnage production. If the deal proceeds the unions commented in a statement that they would fight strongly against it.

A deal between Hyundai and Daewoo would seem to be a good match up given Hyundai’s expertise in LNG fuelled tankers and a wide variety of other vessels and Daewoo’s previous portfolio of container ships and navy vessels. The market however is seemingly not convinced, the Daewoo Group’s track record of late is poor having expanded too quickly in too many market areas and having survived only by dint of large government subsidies in intervals stretching back two decades.

HHI shares fell 4.39% after details of the deal were released, this on the back of a losing quarter. Under the terms on the table KDB will transfer the 55.7% stake it holds in Daewoo in exchange for 7% in a new joint venture company which will hold all the HHI and Daewoo shipbuilding portfolio. The Hyundai Heavy Industries Group would hold 28% of the stock in the new company.