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Hyundai Heavy to acquire DSME from Korea Development Bank

Policy lender will offer its controlling stake in DSME in exchange for about $1.4bn of new shares to be issued by HHI. The deal is expected to be completed in five to six months

KDB chairman Lee Dong-gull says the deal will ‘raise the fundamental competitiveness of Daewoo, at a time when the threat from latecomers in China and Singapore is growing’

KOREA Development Bank has agreed a share swap with Hyundai Heavy Industries to sell its controlling stake in Daewoo Shipbuilding & Marine Engineering Co.

The move comes after HHI, the world’s largest shipbuilder by orderbook size, expressed interest in acquiring its smaller rival on Wednesday.

The deal will see KDB, which owns 55.7% of DSME, transfer the stake in exchange for Won1.5trn ($1.4bn) worth of HHI new shares, the policy bank told a press conference on Thursday.

The state lender will also consider extending Won1trn in finance to support DSME, as part of the agreement.

“We proceeded with the M&A process first, and signed the MOU today,” KDB chairman Lee Dong-gull said. “We will contact Samsung Heavy, another potential buyer, to see if it is interested in Daewoo Shipbuilding as well.”

Mr Lee, who expects the deal to be completed within to six months, said it will “raise the fundamental competitiveness of Daewoo, at a time when the threat from latecomers in China and Singapore is growing”.

Lloyd’s List has sought comments from KDB, HHI and DSME.

After years of heavy losses amid the industry downturn, DSME embarked on a restructuring programme more than two years ago that saw KDB become its majority shareholder via a debt-to-equity swap.

A consolidation between the three largest South Korean shipbuilders — HHI, DSME and SHI — has been expected by the industry for a while, with KDB having been seeking a withdrawal with efforts in helping the shipbuilders get back on their feet.

A merger between HHI and DSME would make more sense as the two have more overlaps in their shipbuilding businesses, whereas SHI is more focused on offshore projects.

Backed by a surge in orders for liquefied natural gas carriers, the three giants managed to hit their annual sale targets last year.

Expecting the LNG carrier ordering binge to continue, HHI aims to win newbuilding orders valued at $11.7bn in 2019, up 15% from 2018, while DSME targets a 10% increase to $8bn.

SHI eyes $7.8bn, representing a 24% improvement from last year.

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