HHI formally absorbs long-troubled DSME

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HHI formally absorbs long-troubled DSME


KDB President Lee Dong-gull, left, shakes hands with Kwon Oh-gap, chairman of Hyundai Heavy Industries Holdings, on the acquisition of Daewoo Shipbuilding and Marine Engineering at the state-owned bank’s headquarters in Yeouido, western Seoul, on Friday. [YONHAP]

Hyundai Heavy Industries (HHI) signed an agreement to acquire Daewoo Shipbuilding & Marine Engineering (DSME) on Friday, creating the world’s largest shipbuilding group and putting an end to DSME’s independence after two decades of decline.

The Korea Development Bank (KDB), the main creditor of DSME, convened a board meeting to approve the sale while labor groups of each company staged protests outside of the headquarters of the bank in Yeouido, western Seoul.

DSME’s union argues that the sale was made in a back-room deal. HHI’s union maintains that the acquisition will hurt the financial status of the country’s top shipbuilder.

Lee Dong-gull, chairman of the Korea Development Bank, attempted to appease the unions at a press briefing following the agreement.

“The DSME workers will be entitled to the same benefits as HHI workers,” he said, “The acquisition could also boost the competitiveness of both companies by sharing advanced technologies and reducing costs.”

After Hyundai’s takeover, the combined unit’s total assets will reach around 67 trillion won ($58.9 billion), making the group the country’s seventh largest.

Under the agreement, Hyundai Heavy Industries Group, the holdings unit of HHI, will create a new holding company to control HHI, DSME and affiliates of DSME and HHI, which means that the deal would not translate into a full merger of the two companies. In this deal, the KDB is offering 1.5 trillion won in support and possibly another 1 trillion won if needed.

The bank would give its 55.7 percent stake in DSME - reportedly worth 2.2 trillion won - to the holdings unit. In exchange, the holding company will issue shares to the KDB worth the same as the 55.7 percent stake. That would make the bank the second-largest stakeholder in the holding company after Hyundai.

Since DSME will be run under the holding company, there will be no layoffs, the KDB has said.

Analysts predict that the Korean shipbuilder will be strong in the manufacturing of liquefied natural gas carriers, a class of ship that is likely to be in demand.

Together, the HHI Group and DSME captured 60.6 percent of LNG carrier orders last year, or 43 out of 71, according to data provided by the two groups.

With HHI announcing that the merger will allow for technology sharing and cost reductions, market analysts expect that the combined unit could gain an unrivaled dominance in the LNG segment.

Other benefit includes a reduction in costs for research and development.

The bank also suggested the sale to Samsung Heavy Industries, the country’s third largest player, but the Samsung affiliate declined the offer.

BY PARK EUN-JEE [park.eunjee@joongang.co.kr]
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