Hanwha chosen as preferred bidder for 49.3 percent of DSME

Economy

Published: 26 Sep. 2022, 18:36 Updated: 27 Sep. 2022, 18:44

Hanwha chosen as preferred bidder for 49.3 percent of DSME

DSME shipyard in Geoje, South Gyeongsang. [YONHAP]

A preferred bidder has been chosen to buy 49.3 percent of Daewoo Shipbuilding and Marine Engineering (DSME), a troubled shipbuilder that's controlled by a state-owned bank.

As a stalking-horse bidding process will be used, a higher bid can still be lodged and accepted by Korea Development Bank (KDB), owner of 55.7 percent of the company.

A group of related companies is making the bid, and the stocks of the two that are public dropped on the news of the possible purchase of the shares.

Hanwha Aerospace will be investing 1 trillion won ($698 million) for half of the 49.3 percent stake in the company. Hanwha Systems will be investing 500 billion won, Hanwha Impact Partners, a fund, 400 billion won and Hanwha Energy 100 billion won.

"We have decided to choose the stalking-horse method," KDB Chairman Kang Seog-hoon said Monday. "We expect through the 2-trillion-won investment, DSME will be able to counter the lack of funding as well as the lack of future growth engines."

In a stalking-horse bid, a conditional contract is signed to put a floor on the bidding and others can make offers for the asset as long as they are higher than the first bid.

Hanwha companies offered to buy DSME for 6.3 trillion won in 2008 before the global financial crisis. The deal fell through as DSME employees resisted the sale and funding became difficult during the crisis.

If the deal goes through this time, it would be the first time that the shipbuilder has been in private hands since a government-led workout in 2001.

DSME was on the verge of being sold to Hyundai Heavy Industries earlier this year, but the EU regulators rejected the deal on grounds that the company would monopolize the high-end LNG carrier market.

The companies said in a statement that they expect that as a result of the sharing of customer networks in the Middle East, Europe and Asia, exports will increase.

They also said the addition of the LNG carriers and clean-energy offshore plants will add to their green energy portfolio while creating synergy with their renewable businesses.

The biggest obstacle for the companies purchasing the shares is the massive losses reported by DSME.

In the first half of the year, the shipbuilder reported a 667.9 billion won in net losses. The company also has significant debt.

While the losses and the debt ratio are major problems, the shipbuilder's losses have narrowed since 2021 and the company's order books are full.

Kang Seog-hoon, Korea Development Bank chairman announces the sale of DSME at the state-owned bank's headquarters in Seoul on Monday. [YONHAP]

Labor resistance could remain a problem.

A DSME shipyard was brought to standstill for 51 days as workers went on strike and occupied the facility, with the strike becoming violent at times.

The company estimates it lost 800 billion of business as a result of the strike.

Hanwha Corporation shares dropped 5 percent in trading Monday after the announcement of the transaction. Hanwha Aerospace stock fell more than 10 percent. The Kospi fell 3 percent in trading the same day.

BY LEE HO-JEONG [lee.hojeong@joongang.co.kr]