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HHI TAKEOVER OF DSME - SOON TO BE FINALISED, BUT FACES OPPOSITION

Tuesday, February 12, 2019 

According to South Korean Yonhap News Agency, the state-run Korea Development Bank (KDB) has cleared the way for Hyundai Heavy Industries (HHI) to take over its smaller local rival Daewoo Shipbuilding & Marine Engineering (DSME).

KDB said that having discussed the merger with Korea's other major shipbuilder, Samsung Heavy Industries, it has learned that Samsung has no intention to join the race to take over DSME.

HHI and KDB will finalise a formal deal in early March, according to the state-run lender. Last month, the two signed a temporary deal. KDB is currently DSME's main creditor, with a 55.7% stake in the company. Under the deal estimated at over 2 trillion won (US$ 1.78 billion), KDB will hand over its Daewoo Shipbuilding stocks to Hyundai Heavy and buy 1.5 trillion won worth of Hyundai Heavy stocks to be issued later. The lender will also consider extending 1 trillion won in financial help to DSME. In return, HHI will be split into two entities, with one to be listed on the market. HHI will also sell its stocks to KDB.

Should the deal proceed as planned, Hyundai Heavy Industries Holdings Co., the parent of HHI, will hold a 26% stake in the new entity, with KDB owning 18%. KDB chairman Lee Dong-gull said that the deal is expected to be completed in five to six months.

The combination of the two shipbuilders would, according to Yonhap, create an unrivaled player in the sector. As of last year, Hyundai Heavy had an order backlog totaling 11.14 million compensated gross tons (CGTs), the largest among others in the sector. The comparable figure for Daewoo Shipbuilding was 5.84 million CGTs. Their combined order backlog accounts for 21.2% of the global total.

However, there are fears that the deal could be held up - not only by regulatory approval but strong worker opposition to the deal and regulatory approval. Labour unions at both HHI and DSME are fiercely opposed to the deal, claiming it could lead to massive layoffs. DSME workers are to vote on strike action unless there are promises to protect jobs.

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