DSME Board Accepts Takeover to Launch Hanwha Ocean
The board of directors of Daewoo Shipbuilding & Marine Engineering cleared the way for the recapitalization of the financially troubled shipbuilder to proceed. They formally adopted the proposed changes to the company including new management and members of the board of directors as well as rebranding the shipyard to become part of the Hanwha Group. The last step in the long process is scheduled for late in May when the shareholders will meet to approve the board recommendations.
Under the terms of the recapitalization arranged by Korea Development Bank, Hanwha Group will provide nearly $1.4 billion in capital to the shipyard and in turn acquires a 49.3 percent ownership stake in the form of over 100 million newly issued shares to be held by five of Hanwha’s divisions. KDB, which had become the largest investor in the company during the government-led bailout begun in 1999 and completed in 2001, will see its position reduced to just over 28 percent. Last year, bank officials said the time had come for the company to be returned to private investors who could finance the modernization of the operations and support investments in new technologies that would be needed to keep the shipyard competitive.
As part of the agreement, Hanwha assumes management control of the shipyard group. Group Vice Chairman Kim Dong-kwan, son of Hanwha chairman Kim Seung-youn, will become a non-executive director formalizing his role in the takeover of DSME and leadership going forward. George P. Bush, nephew of former U.S. President George W. Bush and a partner in the law firm Michael Best & Friedrich, was also nominated as an independent director. Kwon Hyek-woong, a long-time Hanwha executive previous with Hanwha TotalEnergies Petrochemical Co. and Hanwha’s Support Division, has been nominated to become CEO of the shipyard and member of the board.
Hanwha accepted on April 27 the terms laid out by Korea’s Fair Trade Commission which set restrictions to ensure competition would be maintained in the defense sectors. Concern had been raised that Hanwha, which is a leading defense contractor and supplier of systems, would have an unfair advantage and could attempt to lockout competitors for future naval shipbuilding. Hanwha cited the eroding position of DSME saying that it believed it was urgent to move forward with the transaction.
The shipyard was acquired in 1978 by Daewoo and launched as Daewoo Shipbuilding & Heavy Machinery. Twenty years later during the Asian financial crisis, KDB stepped in to save the company from collapse, and as part of the agreement it was spun off from Daewoo into an independent company. The government had been exploring how to privatize the company for years including a proposed merger with Hyundai Heavy Industries, which the European Union objected to saying it would reduce competition for the construction in the gas carrier segment. KDB identified Hanwha as the preferred buyer in September 2022.
The board accepted the proposal and made its recommendations to the shareholders. The final meeting is set for May 23 where shareholders are being asked to approve the change in management, new directors, and rights offering along with the rebranding of the company as Hanwha Ocean.
The deal comes as the shipbuilding sector continues to report strong declines in new orders and the Korean companies are coming under increasing pressure. In the latest market report issued by Clarkson, April orders were calculated to be down 62 percent versus a year ago and 44 percent versus March 2023. South Korea which had been leading the market or close rivals to the Chinese shipyards fell behind in April receiving just 20 percent of the orders (based on compensated gross tons) versus China which received 76 percent of the orders (based on CGT) placed in April.
Clarkson noted that it is the first time in over five years that China has surpassed 70 percent in its market share for global shipbuilding. Overall, they reported a small decline in the global orderbook backlog. China however now has 45 percent of the backlog compared to South Korea’s 35 percent.