Hyundai Heavy Industries in Talks to Buy DSME

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Published Jan 30, 2019 12:21 PM by The Maritime Executive

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.