Hyundai Heavy Industries May Be Sole Bidder for DSME

Samsung Heavy Industries is not likely to compete with Hyundai Heavy Industries for rights to acquire Daewoo Shipbuilding and Marine Engineering (DSME). South Korean policy bank KDB is preparing to sell its majority stake in DSME to Hyundai Heavy Industries, and has signed a memorandum of understanding for the terms of the $2 billion deal; however, KDB left the door open for Samsung Heavy Industries to make a competing bid. 

On Friday, Yonhap reported that Samsung Group - Samsung Heavy Industries' parent company - is not likely to have an interest in expanding its presence in shipbuilding. Samsung has until the end of the month to submit a bid, and is presently reviewing its options. It has previously denied an interest in taking over its rival. 

At the end of January, Hyundai Heavy Industries (HHI) signed a preliminary agreement to take over DSME from the South Korean government. The complex agreement centers on a large stock swap, and HHI will partially fund its investment by selling a stake in a refining subsidiary. The merger of two out of South Korea's "Big Three" shipbuilders would create the largest shipbuilding company in the world, with a global market share of about 20 percent (and half the world's LNG carrier orderbook). 

At a press conference announcing the deal, KDB Chairman Lee Dong-gull said that the agreement was not yet finalized, and that Samsung Heavy Industries would also have a chance to bid for DSME. However, foreign bids will not be encouraged: KDB's policy objective is to end up with two large Korean shipbuilders, not one foreign-owned shipbuilder competing with two domestically-owned yards.  “In order to fundamentally enhance the competitiveness of the industry, it is crucial to eliminate the inefficiency caused by overlapping investment under the current 'Big Three' structure,” Lee said. 

Plans for a Korean shipbuilding mega-merger have led to new speculation on the possibility of a merger between China's two state-owned shipbuilding giants CSSC and CSIC. The two conglomerates have denied any knowledge of merger plans in the past, but China's central government recently expressed an interest in consolidating its shipbuilding holdings to improve competitiveness.