DSME is back on the block after four years

The Park Geun-hye administration is trying to sell Daewoo Shipbuilding and Marine Engineering (DSME) four years after Hanwha Group gave up its ambition to acquire the shipbuilder because of the global financial crisis.

The public fund management committee under the Financial Services Commission confirmed it is looking for a manager that will oversee the entire sale process of the nation’s third largest shipbuilder.

“After appointing a manager by mid-July, we will discuss details to determine the sale method and schedule,” said an official at the FSC. “The full-fledged sale procedure will take off as early as in the second half of the year.”

The government is currently weighing the possibility of selling its holding of 17.15 percent of DSME first, separate from the 33.1 percent stake held by the Korea Development Bank.

“We previously made failed attempts to sell both stakes in a lump sum,” said the official. “We are looking into the option of selling the 17.15 percent stake first and subsequently selling KDB’s stake.”

Even if the FSC committee sells 17.15 percent of DSME shares, managerial control won’t be changed because the Korea Development Bank is the largest shareholder.

When DSME, the shipbuilding arm of the now-defunct Daewoo Group, was first put up for sale in 2008 by the Lee Myung-bak government, Hanwha Group, Posco, GS Group, and Hyundai Heavy Industries competed for the world’s No. 3 shipbuilder.

The government chose Hanwha, which proposed 6 trillion won for acquisition, but the company gave up in 2009 due to the global financial meltdown.

Due to a slump in the global shipbuilding industry, the idea of selling DSME shares faded away. The idea resurfaced in February when the state-run Korea Asset Management Corporation handed over its DSME stake to the FSC.

Market observers said the Park government wants to recoup public funds that her predecessors injected into cash-strapped companies during the 1997-1998 Asian financial crisis as soon as possible.

Currently, the government is pushing for privatizing Woori Financial Group, which former President Lee Myung-bak tried in vain three times since 2010.

FSC Chairman Shin Je-yoon said May 28 the “privatization of Woori Financial will be completed by the end of next year” adding that speed matters more than price when it comes to clearing nonperforming assets.

Meanwhile, some market observers raised concerns that the government’s attempt to sell DSME shares could add an extra burden to the already suffering shipbuilding industry.

They said the market will pay little interest to the acquisition given that STX Offshore and Shipbuilding, the flagship company of cash-strapped STX Group, has signed a voluntary debt-restructuring plan with creditors due to the prolonged slump in the global shipbuilding market.

On the other hand, others suggested there may be competition for DSME as it bagged $14.2 billion worth of orders last year alone, the largest by local shipbuilders.

The news of the government’s renewed attempts to sell DSME led to a 2.83 percent drop in its stock, which closed at 25,800 won ($25.20) yesterday, down 43.3 percent from 45,500 won on June 10 2011.

According to Clarkson, the U.K-based shipbuilding market information provider, the so-called newbuilding price index dipped 126 points on June 7, down 0.8 percent compared to a week earlier.

When the index is above 100, conditions are better for new shipbuilding.

“The newbuilding price index has fallen to a level that makes it hard for any shipbuilder in the world to make normal profits,” said Jeong Dong-ik, an analyst at Hanwha Investment and Securities.

Kim Hyun, an analyst at Shinhan Investment and Securities, suggested the government may sell its holdings of DSME shares along with the Korea Development Bank’s shares “if the shipbuilding industry recovers.”

BY KIM MI-JU [mijukim@joongang.co.kr]