Daewoo Shipbuilding & Marine Engineering is waiting to hear how lead shareholder Korea Development Bank (KDB) responds to the European Union veto of a planned merger with Hyundai Heavy Industries Holdings (HHIH).

According to local press reports on Friday, South Korea's Fair Trade Commission (FTC) said it will end its review of the merger after Korea Shipbuilding & Offshore Engineering (KSOE) formally abandoned its takeover bid.

"Due to the European Commission's veto, the company can't continue with the planned merger," the FTC said. "KSOE submitted documents to withdraw the merger, and we will stop reviewing the acquisition as soon as we confirm the contract has been terminated."

HHIH — the holding company of Hyundai Heavy Industries Group — holds a 36% stake in KSOE, which controls the group shipyards.

Local sources said DSME's workers' union has called for the resignation of KDB's chief because of the disruption the merger efforts have created to the yard's business since the tie-up was first floated in 2019.

One DSME yard chief was in a celebratory mood following news of the EU decision. He pointed out that the yard has a good order backlog for the next two to three years, with more deals expected to be signed in 2022 on the back of the current level of enquiry.

He said DSME does not know what KDB, which holds a 55.7% stake, will do next.

'Confusion and uncertainty'

LNG carriers are a DSME speciality, but the yard is also building back its container ship newbuilding book and has an eye on tanker orders rebounding in the second half of 2022. Photo: BW LNG

Other Korean sources working closely with the yard said there is confusion and uncertainty at the yard in the wake of the EU pronouncement.

The government said the merger collapse will not have a big impact on the shipbuilding industry, as there has been an uptick in high-value orders since the bid was launched.

DSME said in its January investor presentation that it won orders totalling $10.86bn in 2021, achieving 141% of its $7.7bn sales target.

The yard netted 61 vessels during the year, including 15 LNG carriers, nine LPG vessels, 20 container ships and 11 tankers worth $7.63bn. Of these 55 commercial vessels, DSME said 45 are being built with dual-fuel propulsion systems.

It added one floating production unit, two wind turbine installation vessels and one floating storage, production and offloading unit priced at $2.27bn in total, plus two naval ships.

DSME said it delivered six LNG carriers, six boxships, nine tankers and three LPG vessels in 2021.

It said it is sitting on a backlog of orders worth $23.69bn, made up of 32 container ships, 28 LNG carriers, 18 tankers and 12 LPG vessels, plus offshore and naval ships.

The yard said simplifying its product line and repeating its construction methods will maximise its profitability.

It highlighted that newbuilding prices are rising due to steel price increases and the backlog of orders that have filled up berths at domestic yards.

But it said the increase in dual-fuel orders will probably have "positive effects" on the recovery of newbuilding prices.