HHI-Daewoo merger delay expected

Paul Gunton

Paul Gunton · 21 August 2019


The planned merger between the world’s two largest shipbuilding companies, Hyundai Heavy Industries (HHI) and Daewoo Shipbuilding and Marine Engineering (DSME) is likely to be delayed until the first quarter of next year, the CEO and president of Hyundai Mipo Dockyard (HMD) H D Shin has told ShipInsight. “Originally we targeted to complete by the end of this year,” he said.

Speaking immediately before the formal handover of its latest newbuilding, the 49,000dwt methanol tanker Mari Couva on Friday (16 August), he said that the draft documentation has been completed and “we are now taking the necessary processes step by step.”

The Hyundai-Daewoo merger will be delayed, said HD Shin, CEO and president of one of the yards affected, Hyundai Mipo Dockyard (photo: ShipInsight)

He said that one of the main outcomes of the deal would be joint research and development activities that would cooperate with universities and research institutes. This will reduce the time needed to develop new technologies, he said, and the group’s focus will be on high-tech vessels. As an example, he mentioned the four methanol-fuelled tankers, including Mari Couva, that it has contracted from various owners for delivery by the end of this year for operation by Waterfront Shipping of Canada on behalf of the methanol producer Methanex.

The two shipbuilders will keep their names and will be managed independently within a holding company, Korea Shipbuilding & Offshore Engineering (KSOE), that has been set up to incorporate the combined group. It will have four components, Mr Shin said – HHI, HMD, Hyundai Samho and DSME – and they will focus on different sectors of the market. This will save time and money and “the benefits will go to our customers,” he said.

The merger process began in March when HHI signed a deal with the Korea Development Bank (KDB), which owns DSME and had said in January that it wanted to offload some or all of its ownership. If the merger goes ahead, the combined company will be responsible for nearly a quarter of the world’s shipbuilding output.

HMD has done particularly well this year in the MR2 tanker sector, capturing 23 of the 33 MR2 orders placed in the first half of the year, according to data issued in early July by Vessels Value, and the group will have a particularly large share of the LNG shipbuilding sector: our March report noted that at that time “HHI and DSME are building two of every three LNG carriers on order.”

Because of the market dominance that the combined group will have, there are concerns that it will “maybe manipulate the price and dominate [the market]” and “ be harmful to fair competition,” Mr Shin said. However, he is confident that the merger “is a good story for all customers” but he accepted that some countries “maybe have a different opinion … and we needed to [speak] to them.”

So HHI has been seeking approval from anti-trust authorities worldwide. In early July, it approached South Korea’s Fair Trade Commission which, according to the publication Business Korea, can take up to 120 business days to review applications.

Its proposals have been sent to other regions, including – on 22 July – China, where Business Korea also predicts a 120-day review process. But the publication added that, since the Chinese shipbuilding industry is also planning yard mergers, “the State Administration for Market Regulation of China is unlikely to oppose the merger.”

Japan, the US and the EU are also among the regions invited to comment on the proposals and Mr Shin is confident that South Korea’s competing shipbuilding nations will approve the merger plans. As far as the EU is concerned, HHI began talks with its officials in April, ahead of submitting its pre-merger documents to them, and Mr Shin said that feedback had now been received “so the final report will be issued shortly,” he said.

Many smaller countries have also been invited to comment on the proposals but he does not expect significant reaction from those, either.

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