The European Union’s expected objection to the combination of the world’s two largest shipbuilders – Hyundai Heavy Industries Co. and Daewoo Shipbuilding & Marine Engineering Co. – is putting the chill on the South Korean government’s efforts to restructure its shipbuilding industry.
According to government and industry sources on Sunday, the EU Commission will unlikely approve the proposed merger, citing monopoly concerns, particularly in the LNG carrier business.
The commission will soon conclude its review of the merger and notify the Korean government and related parties of its final decision by Jan. 20, the sources said.
EU antitrust regulators are expected to veto the combination after the two Korean shipbuilders declined to offer remedies to allay competition concerns, according to a recent Reuters report.
EU concerns centered on LNG carriers used to transport LNG between Europe and other parts of the world, including the Middle East and North Africa, the report said. European shipping companies are major customers of Hyundai and Daewoo.
Hyundai Heavy hasn’t given an official response to the EU’s demand for remedies, including the sale of the LNG carrier business of either Hyundai or Daewoo. Hyundai Heavy earlier said there’s no point in pursuing the acquisition of Daewoo Shipbuilding if it is forced to sell the profitable LNG carrier business.
Instead, Hyundai Heavy has offered to transfer its LNG shipbuilding technology to other shipbuilders to lower the industry’s entry barriers, and refrain from raising LNG carrier prices over the next few years to allay market concerns over a price hike.
A combined entity of Hyundai Heavy and Daewoo would be expected to control over 60% of the world's LNG ship market, which the EU said could lead to the price hikes of such vessels.
Hyundai Heavy said the EU’s concerns are inflated.
An LNG carrier built by Hyundai Heavy "Market dominance cannot be evaluated by market share alone. Besides, the shipbuilding market is unable to be structurally dominated by one individual company,” said a Hyundai Heavy official.
The proposed Hyundai-Daewoo tie-up has already received the green light from major countries such as Singapore, Kazakhstan and China. The merger is still pending approval from the EU, Korea and Japan.
Korea’s antitrust regulator, the Fair Trade Commission, is expected to give its ruling following the EU’s final decision.
DOMINANT PLAYERS
South Korea is home to the world’s three big shipbuilders – Hyundai Heavy, Daewoo Shipbuilding and Samsung Heavy Industries Co.
Korean shipbuilders have been dominant players in the global LNG carrier market.
In the past year, Kore’s Big Three swept global orders for LNG carriers, more profitable than oil tankers and container ships, amid signs of a global economic recovery from the pandemic.
Analysts said the 2022 outlook is brighter on the growing demand for eco-friendly vessels and new orders.
According to global market researcher Clarkson Research Service, orders for about 612 new LNG vessels will likely be placed with major shipbuilders between 2024 and 2026, given the LNG development projects currently underway around the world.
Korean shipbuilders receive between 50% and 60% of LNG carrier orders from European companies.
The Hyundai Heavy shipyard in Ulsan BACK TO THE DRAWING BOARD?
Hyundai in 2019 signed an agreement to acquire a 55.7% stake in Daewoo Shipbuilding from the state-run Korea Development Bank (KDB) for 2 trillion won ($1.7 billion), alongside a pledge to inject 1.5 trillion won into Daewoo to buy the latter’s new shares.
If the proposed combination of the two large shipbuilders goes awry, it could send the Korean government’s planned restructuring of the local shipbuilding industry back to the drawing board.
The government has pushed for the full privatization of Daewoo Shipbuilding to recover taxpayers’ money and has worked to streamline the shipbuilding industry through a merger to tighten its lead over rival shipbuilders, particularly those in China.
The government said it is waiting for the EU’s final decision, saying that its possible veto is not a “foregone conclusion.”
Industry watchers said Daewoo Shipbuilding would be victim to a deal collapse as the company has already disclosed its advanced membrane LNG tanker design technology to Hyundai.
Write to Ji-Hoon Lee and Jeong-Min Nam at lizi@hankyung.com In-Soo Nam edited this article.
