Hyundai Heavy Industries’ acquisition of DSME is set to dominate the market for newbuildings over panamax size and give the newly formed yard an edge in large-scale newbuilding projects, rivals fear.
Experts anticipate HHI and DSME to earn significant savings by combining their administrative, financing, design, sales and marketing, and procurement divisions.
Additional economies of scale will come from sharing production, research and development. This is seen as a key advantage as shipowners are seeking to reduce carbon emissions through next generation technology.
The two yards will also have ample capacity to bid as one for upcoming large-scale tenders in LNG and ultra large containership sectors.
Synergies
“The integration of these shipyards will bring synergies, in particular in the LNG segment,” said one shipbuilding player.
One Japanese yard said: “Japanese yards have been consolidating to try to compete with China and South Korea but there is no way they can match the scale of the Hyundai-DSME merger.”
A clash of corporate cultures between the two is being seen as a potential stumbling block.
However, HHI has experience incorporating large-scale shipbuilding facilities into its existing business. It took over the then Halla Samho shipyard in 1999.
HHI is moving to take over DSME without any acquisition costs, in an effort to ease pressure on it to repay the near-$2bn price quickly.
It was offered DSME by majority shareholder Korean Development Bank (KDB). The new yard will be owned via a holding company.
Positive stance
Shipowners are taking the positives from the mega-merger.
The general view is that the combined market share of the two giants will be enough to support yard prices and asset values in the existing shipping market.
Owners of recently delivered vessels will benefit, while those preparing to order may face higher yard prices.
“It is great news. The shipbuilding market will be concentrated and will make more rational offers,” said one Asia-based shipowner. “[South] Korean shipyards are known for LNG shipbuilding and with Qatar’s massive demand for LNG newbuildings, we foresee Korean shipyards will keep shipbuilding prices firm.”
He also supported the view that the merger will be positive for shipping companies that have already ordered ships, but it is not good news for those who plan to order in the future.
Hurdle for newcomers
“Firmer shipbuilding prices will make it harder for newcomers to enter the shipping industry through newbuildings,” he said.
“Chinese shipyards will also benefit from this as some owners will turn to them if they can not afford to pay the Korean shipyards.”
The takeover also relieves pressure on the South Korean government. It stood accused by Japan at the World Trade Organization of providing financial support to keep DSME as a going concern through state-controlled KDB and Export Import Bank of Korea. However, some yards believe that DSME should be allowed to go out of business and the acquisition by HHI just represents another method of keeping a failed business artificially afloat.
“A collapsed shipyard should be closed down and not taken over by its brothers,” said one Chinese shipyard. “HHI’s takeover of DSME will further delay the recovery of the shipbuilding industry.”
