Hanwha Group has announced on 26 September that it has signed a memorandum of understanding (MoU) with Daewoo Shipbuilding & Maritime Engineering (DSME) for the former to acquire a controlling stake in the latter, potentially creating South Korea’s largest defence company.
The MoU is for Hanwha to acquire 49.3 per cent of the shipbuilder’s shares for 2 trillion won ($2.2 billion) through a paid-in capital increase from the largest stakeholder of DSME, the Korea Development Bank (KDB).
The proposed sale is however conditional upon Hanwha being selected by an October 17 deadline to carry out the acquisition ahead of other potentially competing investors, and could still fall through if an alternative buyer offering better conditions were to make a bid.
If the buyout is completed, DSME will be sold by the end of this year, with the shares split among six different Hanwha entities including its parent Hanwha Systems, its aerospace and energy divisions.
KDB currently owns 55.7 per cent of DSME and the same would see its holdings be reduced to around 28 per cent of DSME, although regulatory filings show Hanwha will be buying new shares issued by the shipbuilder instead of buying existing shares.
The bank had been looking to sell the stake for a while, with attempt to sell the stake to rival shipbuilder Hyundai Heavy Industries was scuppered by the European Commission in January over concerns that merger would result in a "dominant position and reduce competition in the construction of large liquefied gas (LNG) carriers".
It has owned DSME since original parent the Daewoo Group collapsed in 1998. DSME has reported a net loss of 1.8 trillion won ($1.955 billion) in the last financial year which ended on 31st March 2022, down from a net profit of 87 billion won ($94.5 million) previously.
A buyout of DSME would create synergy for the Hanwha’s defence business by giving it a foothold in the shipbuilding sector, although Hanwha Defense is not participating in the acquisition.
Hanwha Defense has scored a number of export successes to date, with its K-9 self-propelled howitzers securing recent contracts in Australia, Poland and a number of other countries. Its Redback Infantry Fighting Vehicle is also in the running for Project Land 400 Phase 3 to replace the Army’s M113AS4 armoured personnel carriers.
DSME is the world’s largest warship and submarine builder and has been involved in the development and construction in all three classes of diesel-electric attack submarines operated by South Korea’s navy. It also boasts sophisticated shipbuilding technologies for special vessels.