South Korean Regulators Deny DSME Merger Rumors

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By MarEx 2016-12-28 16:52:36

On Wednesday, the chairman of South Korea's Financial Services Commission, Yim Jong-Yong, reiterated earlier statements that Daewoo Shipbuilding and Marine Engineering would not be merged with Samsung Heavy Industries and Hyundai Heavy Industries. 

"The Big Three companies [DSME, HHI and SHI] are all under restructuring and a potential 'big deal' will harm all of them," said Yim, speaking at a press luncheon. "A precondition for a 'big deal' is all of those companies undergo restructuring thoroughly and stand on their own. However, they are not in such a condition."

The commission believes that new IMO regulations on ballast water treatment and sulfur emissions will create a resurgence in shipbuilding; if DSME can stay afloat through the next year, this rising tide would aid its recovery, Yim said. 

DSME lost roughly $1 billion in the first half of 2016, and it is struggling to cut costs. As part of its restructuring efforts, it is reducing payroll costs through attrition, layoffs, early retirement and furloughs. On Wednesday, sources at the yard informed Yonhap that the firm's 4,700 office employees would begin rotating through periods of unpaid leave. The first batch of 300 personnel will have one month off starting in January. 

DSME scandal grows

The ongoing accounting scandal at DSME grew wider on Tuesday with the indictment of three employees of the South Korean branch of accounting firm Deloitte. They stand accused of overlooking DSME’s alleged accounting fraud in 2013 and 2014. Three former DSME executives have already been arrested in connection with the case. 

Deloitte Anjin denied any wrongdoing and said that it had required DSME to restate its earnings. The shipbuilder issued revised figures for 2013 and 2014 in late March, after external audits found that its extraordinary loss of $1.7 billion for 2015 was actually attributable to prior year results. 

LNG projects offer big payoffs

The shipbuilding market for tankers, bulkers and container vessels has been slow, and Korea's Big Three have competed hard for high-value vessels like FSRUs and FLNGs to make up some of the slack. 

Hyundai Heavy Industries has won the contract for Fox Petroleum's $560 million FSRU for the port of Karwar, Karnataka. HHI and Samsung Heavy industries were in the running for the vessel, and engineering firm POSCO Daewoo was said to have an interest as well. Previous reports had tapped SHI as the leading contender for the project, but in a news release on December 27, HHI announced that it had won the prize. 

Once built, the FSRU would be Asia's largest at one billion cubic feet per day of regasification capacity and 12 million cubic feet of LNG storage. It will also be the first vessel of its type in India. 

The FSRU for Karnataka is among a number of highly competitive LNG infrastructure tenders up for bidding this year, and this is good news for South Korean shipbuilders, who have long held a majority of the market for this class. Contracts in the works or recently awarded include an FLNG for New Age / Eni's Congo-Brazzaville Marine XII block, an FSRU for the Java-1 project in Indonesia, an FSRU for Maran Gas, and one to four FSRUs for Hoegh LNG.