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The birth of a Korean giant. That's how the world's largest shipbuilding company is built
Author:Mariusz Dasiewicz
At the beginning of this month, from the merger of the two largest producers of ships and ships of the world, a shipbuilding company, the giant, was formed in the Republic of Korea. As soon as the agreement was final, it held the global priority palm, having more than 20% of the global shipbuilding market.
On 31 January, Hyundai Heavy Industries Group (HHIG) announced its intention to take over the controlling package of the competitive shares of the state-owned Daewoo Shipbuilding & Marine Engineering Group (DSME) and signed a preliminary agreement with the Korean Development Bank, the main shareholder of DSME. The Bank agreed to transfer its entire share of DSME of 55.7% (the value of KRW 2.12 trillion, or about US$1.9 billion) to the joint venture, in exchange for 7% shares in the new company and privileged shares of KRW 1.25 trillion (about US$1.12 billion). HHIG will hold 28 percent shares in the joint venture. Both Hyundai Heavy Industries (HHI), a subsidiary of the HHIG and DSME shipbuilding industry, will form a joint venture within the joint venture.
Finally, on 8 March, HHIG concluded a formal takeover agreement for DSME. The rationale for this move was "to strengthen the competitiveness of the Korean shipbuilding industry". HHIG announced that the transaction combined the best technologies and knowledge of both companies. Hyundai is a world leader in the construction of liquefied natural gas ships, and Daewoo specializes in container ships and warships. It should be recalled that Daewoo was once one of the largest conglomerates in the country, with companies from shipbuilding to electronics and cars, but fell under the burden of debt following the Asian financial crisis. As a result of serious financial problems in 1999, DSME declared bankruptcy. At that time, the Seoul government first provided financial support to a company in difficulty. For another 20 years, the state-owned shipbuilding company supported the amount of about 10 trillion KRW to keep the indebted company on the surface. As part of the March agreement, the bank also informed that it would consider providing additional financial assistance of 1 trillion KRW to DSME. After the acquisition, HHI announced that it would split into two entities, one of which would be listed on the Korean stock exchange.
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This one reacted by falling HHIG shares by more than 4%, and also decreased profits from the first quarter of 2019. Trade unions, fearing restructuring of the new shipbuilding giant, including workers' dismissals, also do not facilitate the case. This does not change the fact that after the acquisition has been completed, the combined largest shipyards building conventional, special and warship ships count on defence-related revenue of nearly US$2 billion. However, to facilitate the launch, Seoul approved an aid plan for the shipbuilding sector, which faces strong competition – mainly Chinese and Japanese, but also European. 20 large container ships – 12 units of 23,000 TEUs and eight units of 14,000 TEUs, most of which will build HHI and DSMEs, but Samsung will also benefit. The activities of the Government of the Republic of Korea criticised the PRC and Japan. Currently, HHI ranks first in the world among shipbuilding producers with orders for 279 ships with a compensated gross tonnage of 11.15 million CGT, on the second is DSME – 86 ships, 5.84 million CGT, only the Japanese Imabari company ranks third, and behind it Italian Fincantieri.
It is worth mentioning that both Korean shipyards are known for building ships of different classes for both their own fleet and for export. DSME and HHI have so far produced, among others, Chang Bogo, Son Won-Il (the first two are German licenses – types 209/1400 and 214) and Dosan Ahn Changho, large Gwanggaeto the Great, Chungmugong Yi Sun-sin and Sejong the Great, Docdo, Cheon Wang Bong, and Incheon and Daegu types. These ships were created in international cooperation, mainly industrial partners from Germany and the United States.
The experience gained in their design and construction resulted in export contracts. Starting with supplies and logistics ships for the British Royal Fleet Auxiliary Tide type, their derivative for the Norwegian Sjøforsvaret type Maud, or for the New Zealand Royal New Zealand Navy type Aotearoa, by more advanced constructions. The latter include submarines for Indonesia. It is about three Nagapas type units, which are a development of the Chang Bogo type, or German 209/1400Mod. Jakarta signed a $1.1 billion contract with DSME in December 2011. The first pair was formed in the Korean shipyard in Okpo, and the third unit will be built locally at PT PAL in Surabai. This is the first example in the Western world of a country that has acquired submarine technology and successfully used it to sell to a third country, including technology retransfer. Negotiations are currently underway to purchase further submarines for Indonesia.
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Another important export achievement of the Republic of Korea is the construction of a pair of DW 3000F frigates for Thailand. The prototypic unit Bhumibol Adulyadej has already reached the recipient, another is under construction. These are modern ships equipped and armed mainly with European production systems. These achievements confirm the increasing position of the Republic of Korea in the export market of ships, not only auxiliary but also combat first rank.
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