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Shipbuilders

Hyundai seeks cut in $1.9 bn Daewoo Shipbuilding deal price

Nov 06, 2020 (Gmt+09:00)

Hyundai Heavy Industries Holdings Co. is seeking to cut the 2.1 trillion won ($1.9 billion) acquisition price for a majority stake in South Korean rival Daewoo Shipbuilding & Marine Engineering Co., as the world’s largest shipbuilder struggles with dwindling orders.

In March 2019, Hyundai Heavy agreed to buy a 55.7% stake in the world’s No. 2 shipyard Daewoo Shipbuilding from state-run Korea Development Bank (KDB) through share swaps.

Hyundai Heavy Industries Holdings Co., which runs three Korean shipbuilders, already completed its ownership restructuring in June 2019 to absorb the rival company.

But the all-stock deal has not yet been closed, awaiting approval by the European Union’s antitrust body, which is probing the tie-in of the world’s two largest shipbuilders.

Now that Hyundai Heavy is suffering a sharp decline in new orders due to the pandemic impact, it recently demanded a change to the share swap terms, according to shipbuilding and financial industry sources on Nov. 6.
Hyundai Heavy's shipyard in Ulsan, South Korea, Septemer 2020

The deal involves 6.1 million common shares and 1.25 trillion won worth of convertible preferred shares in Korea Shipbuilding & Offshore Engineering Co., 30.95% owned by Hyundai Heavy Industries Holdings. Their combined value is 2.09 trillion won.

Additionally, Hyundai Heavy had agreed to inject 1.5 trillion won in fresh capital into Daewoo Shipbuilding to shore up its balance sheet.

But Hyundai's new orders received so far this year have reached just half of its annual target of $11 billion, which could leave its dock workers idle from next year, the sources said.

KDB showed reluctance to the demand, however, wary of a possible collapse of the transaction. In September, HDC Hyundai Development Co. terminated a 2.5 trillion won purchase of Asiana Airlines Inc., despite KDB's proposal to ease the financial burden on the construction firm to acquire the airliner.
 
Back in 2008, South Korea's Hanwha Group abandoned a 6.3 trillion won acquisition of Daewoo Shipbuilding and received back half the 315 billion won deposit after nine years of legal haggling.

Daewoo Shipbuilding closed little changed at 22,600 won on Friday, and Hyundai Heavy Industries Holdings edged down 0.45% at 222,000 won, in line with the steady broader market Kospi. 

Write to Sang-eun Lucia Lee and Man-Su Choi at selee@hankyung.com

Yeonhee Kim edited this article.

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