Hyundai Heavy Industries Holdings (HHI) is facing a major examination of its planned $1.8bn merger with South Korean compatriot DSME.
Reuters has cited two sources familiar with the matter as saying the European Union (EU) will launch a "full-scale" competition investigation into the huge tie-up next week.
This is due to "serious EU antitrust concerns", the sources added.
The two shipyard giants would have a 21% market share if the merger - announced in January - goes through.
A preliminary European Commission review will finish on 17 December.
Full probes can take up to five months. The EU could insist on asset disposals or technology or contract transfers to rivals.
The EU is not yet commenting.
Singapore questions
Kazakhstan has already cleared the deal, but Hyundai Heavy still needs approval from South Korea, Singapore, China and Japan.
The company is trying to persuade EU regulators that there is a threat from the merger of the Chinese state shipbuilding groups CSSC and CSIC, sources have previously said. This entity now has revenue more than three times its own.
HHI and DSME plan to operate independently after combining.
Last week, Singapore’s Competition and Consumer Commission (CCC) raised competition concerns about the merger.
“Third-party feedback suggests that the parties are currently two of the largest suppliers for the global supply of LNG carriers, and possibly large containerships and large oil tankers,” the CCC said.
“There are concerns that the proposed transaction will remove competition between two main suppliers of these commercial vessels, to the detriment of customers in Singapore.
“Feedback also revealed concerns on whether alternative suppliers will be sufficiently strong competitors to the merged entity.”
The CCC said there were also concerns that the “barriers to entry and expansion, particularly in relation to more sophisticated vessels such as LNG carriers, may be high”.
The group said last week it was working with Singapore’s regulators to allay their concerns.
“We will do our best to get approval without any problems,” a Hyundai Heavy Industries spokesman said.
