World’s two biggest shipbuilders to combine in $2bn deal

Hyundai Heavy Industries, the world’s biggest shipbuilding group, has announced a share swap deal worth 2.1 trillion won ($1.98 billion) to take over second-ranked Daewoo and create a global heavyweight controlling over 20 percent of the market.

The move comes as the worldwide shipbuilding sector recovers from a global economic downturn that led to massive losses, widespread job cuts and, in 2017, the $2.6 billion bailouts of South Korea’s Daewoo Shipbuilding & Marine Engineering Co Ltd.

State-funded Korea Development Bank (KDB) owns 55.7 percent of Daewoo and has said it intends to sell the stake.

The combination of two of the giant shipbuilders would ease competition and excess capacity, which have depressed ship prices, KDB Chairman Lee Dong-gull said at a news conference.

The deal will “raise the fundamental competitiveness of Daewoo, at a time when the threat from latecomers in China and Singapore is growing,” Lee said on Thursday.

Hyundai and Daewoo hold a combined market share of 21.2 percent, followed by Japan’s Imabari Shipbuilding with a 6.6 percent, showed data from Clarksons Research.

Lee said it will take several months to gain approval from antitrust regulators from related countries. He said the size of the resulting entity’s market share would not be detrimental to the interests of customers.

Daewoo will also receive liquidity support of 2.5 trillion won ($2.25 billion) from KDB and Hyundai, Hyundai said in a stock exchange filing.

Daewoo shares rose as much as 22 percent on Thursday, before ending up 2.5 percent. Those of Hyundai Heavy Industries Holdings Co Ltd and unit Hyundai Heavy Industries Co Ltd fell about 4 percent on concern about a high purchase price, analysts said.

The shipbuilding industry accounts for 7 percent of both exports and employment in Asia’s fourth-biggest economy.

Hyundai Heavy’s workers’ union said it will delay a vote on last year’s wage deal in protest of a purchase it says could threaten job security. It said it would be “angered” if the shipbuilder plowed money into buying another big firm having released workers after reporting losses and shrinking orders.

KDB’s Lee ruled out any job cuts after the combination.