Regulatory Delays Push Back Dates for Korean Shipbuilding Mega-Merger
Awaiting further regulatory approvals, Korea Shipbuilding & Offshore Engineering (KSOE), announced that it is again delaying the deadlines for the proposed acquisition of Daewoo Shipbuilding & Marine Engineering (DSME). Hyundai Heavy Industries, the parent company of KSOE, agreed in March 2019 to an $1.6 billion acquisition with the Korea Development Bank, DSME's largest shareholder.
The deal, which would unite two of Korea’s largest shipbuilders and four shipyards, was proposed as a means of strengthening the companies and improving their competitive position with China’s shipbuilding industry. Under the original term of the agreement, KSOE would be set up under the holding company Hyundai Heavy Industries focusing on research and development and investment. Daewoo Shipbuilding will operate under KSOE. The combined companies would include four shipbuilding companies: Hyundai Heavy Industries, Hyundai Samho Heavy Industries, Hyundai Mipo Dockyard, and DSME.
In December 2020, China became the first of the major regulators to announced that they would not object to the proposed transaction. Previously, both Singapore and Kazakhstan had completed their reviews and granted approval of the merger.
The European Commission announced in late 2019 that it had opened an in-depth investigation based on its concerns that the merger may reduce competition in various global cargo shipbuilding markets. Based on delays gather information, in part due to limitations as a result of the coronavirus, the EU has on several occasions suspended the review process. Originally expected to be completed by September 2020, the EU review is expected to continue for several more months.
Korea’s Fair Trade Commission also needs to approve the merger. Korean media previously speculated that the KFTC is holding back on its announcement seeking to coordinate with the EU. The proposed consolidation is also being reviewed by the Japanese.
Under the latest revisions to the timeline, KSOE announced on January 22 that it has agreed with KDB to extend the deadline to June 30, 2021. The deadline for the acquisition of DSME’s shares has also been extended till the end of 2021.
KSOE CEO Ka Sam-hyun had previously presented his business plan for 2021. Citing data from Clarksons Research, he told the Korea Times that the shipbuilding industry was expected to grow by 22 percent to orders for over 43 million gross tons. He said believing that the shipbuilding industry is rebounding that the company is targeting more than above $14.9 billion in new orders this year.
KSOE reported that it was continuing to build on the momentum achieved late in 2020, which included orders for 22 new ships in December. January 2021 has begun strong with more than $1 billion in new orders for 11 new ships. In addition, KSOE expects to begin construction of the first ships under its multi-year agreement to build LNG carriers for Qatar Petroleum.