Hyundai Heavy Industries and Daewoo, both based in South Korea, are the two biggest shipbuilding groups in the world. Now, with Hyundai’s announcement of a $1.98 billion takeover of Daewoo, the two will become a single organisation controlling more than 20% of the market - currently Hyundai and Daewoo hold a combined market share of 21.2%. The global shipbuilding industry is in recovery from a downturn that saw huge job losses and a $2.6 billion bailout of Daewoo in 2017. This significant restructuring of the biggest players is evidence of the change required for the industry to boom again and the appetite to make it happen.
Daewoo is currently owned by the State-funded Korea Development Bank, who have stated that they plan to sell their stake to bring together the two giant organisations with the intention of bringing about an ease in competition and excess capacity, which have negatively impacted ship prices for a long time. There is a threat of further competition coming from China and Singapore, which should prove much less impactful to the Korean industry if it is boosted further into dominance by this buyout.
Many months of work will be required to gain approval from the regulators of related countries, due to the size of the market share that the resulting organisation will possess. Daewoo will receive liquidity support of $2.25 billion from the Korea Development Bank and Hyundai, and their shares rose 22% after the announcement. The shipbuilding industry accounts for 7% of both exports and employment in Asia’s fourth-biggest economy and seems set to grow from here.
Samsung Heavy Industries is the country’s third largest organisation in the industry, who have been approached by Korea Development Bank in conversations regarding their taking over Daewoo. It’s unclear if this is a possible outcome of the restructuring but Samsung shares rose 2.5 percent due to previous investor concerns about it bidding for Daewoo.
For now Hyundai Heavy Industries Holdings and unit Hyundai Heavy Industries shares have fallen about 4% because of concerns about a high purchase price. Analysts say that although consolidation can be good for an industry, the company that buys the stake is not always immediately in better condition.
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