Changed to ‘Big Two’ System?
South Korean shipbuilding giant, Hyundai Heavy Industries Group, is seeking to acquire Daewoo Shipbuilding & Marine Engineering Co. Accordingly, the domestic shipbuilding industry will see its “big three” system consisting of Hyundai Heavy, Daewoo Shipbuilding and Samsung Heavy Industries Co. transform into the “big two.”
Shipbuilding industry and government sources said on Jan. 30 that Hyundai Heavy recently submitted a letter of intent (LOI) to the Korea Development Bank (KDB), the largest shareholder of Daewoo Shipbuilding. The KDB owns a 55.7 percent stake in Daewoo Shipbuilding.
Daewoo Shipbuilding posted 733 billion won (US$655.34 million) and 807.10 billion won (US$721.59 million) in 2017 and 2018, respectively, when Samsung Heavy and Hyundai Heavy showed a loss. Many say it is a “returned profit on books” as the company thinks an operating profit of 1.53 trillion won (US$1.37 billion) in 2016 is excessive. However, Daewoo Shipbuilding won US$6.81 billion (7.62 trillion won) worth of orders last year and almost achieved its goal of US$7.30 billion (8.12 trillion won), showing obvious signs of recovery.
In addition, Daewoo Shipbuilding has an edge in building liquefied natural gas (LNG) carrier which is recently experiencing a global boom. Therefore, it can create a synergy with Hyundai Heavy, according to market experts. British shipbuilding and marine industry tracker Clarkson Research Services said that South Korea clinched combined orders of 12.63 million compensated gross tonnage (CGT) out of the total global orders of 28.60 million CGT last year. South Korea ranked at number one by country for the first time in seven years after they stayed behind China since 2011.
Currently, the market cap of the KDB’s stake in Daewoo Shipbuilding comes to 2.10 trillion won (US$1.89 billion). The amount of Hyundai Heavy’s cash and cashable assets stood at 2.70 trillion won (US$2.43 billion) as of the third quarter last year. Hyundai Heavy failed to turn a profit until last year since the shipbuilding suffered from a long-term recession. However, it will have no problem to raise funds for the acquisition as the company has the most stable financial structure among the nation’s top three shipbuilders.