Deal to Sell DSME to Hanwha Proceeds as No Other Bidders Emerge 

The agreement to sell Daewoo Shipbuilding & Marine Engineering (DSME) to South Korean conglomerate Hanwha Group is moving forward after no alternate bids were received for the financially troubled shipbuilder. Last month, Korea’s seven largest conglomerate submitted a bid valued at $1.4 billion to acquire 49.3 percent of DSME along with management control.

In a stock exchange filing, DSME reported that six companies had been identified, including Hanwha, as prospective investors. However, none of the other companies submitted a letter of intent with a proposal to better the “stalking horse” bid from Hanwha.

Korea Development Bank was seeking a South Korean company to become a major investor in DSME to provide additional capital after the shipyard has again been reporting financial losses. Earlier in the year, directors from KDB said that they felt the shipyard needed to be placed under the control of private investors who could provide the management and capital needed to invest in new technologies that will be required for future ships and shipbuilding. South Korea is placing a strong emphasis on the development of eco-friendly ships and new technologies including automation.

After receiving the initial proposal from Hanwha, DSME in cooperation with KDB launched an open bidding process to acquire the shipyard. Media reports are saying that KDB kept the bidding open until yesterday, October 17, before deciding to proceed with Hanwha. The shipyard is reporting that a detailed due diligence will now be carried out with Hanwha reporting that it expects to sign a final contract in about six weeks. Previously, the company had said it expected the transaction would close in the first half of 2023.

The sale of the shares would bring to a close 20 years of support by the government in the form of an investment from KDB. The bank currently owns 55.7 percent of the equity in the shipyard group and reports it will decrease its holdings in this transaction to 28.2 percent, with the remainder of Hanwha’s position coming in the form of newly issued shares from DSME. The state-run financial institution and other creditors have reportedly provided nearly $3 billion in support to the shipyard since 2015.

The shipyard reported a financial loss of nearly $1.2 billion in 2021 after strong profitability the year before. The losses have continued to mount with DSME reporting a loss of more than $466 million in the first half of 2022. The shipyard also suffered a crippling strike in July that further deteriorated its financial position.

Like the other major shipbuilders, DSME has built a strong orderbook over the past two years during the surge in new construction orders. The strong demand for LNG carriers has benefited the shipyard which is recognized as one of the leaders in building the higher value gas carriers.

Last week, DSME reported that it had received a further order for six LNG carriers valued at $1.29 billion. With that order, the shipbuilder said that it had achieved its target for 2022 orders valued at $8.9 billion. It was the second consecutive year that the order target has been met. The company reports its order book includes 34 LNG carriers, six containerships, and one offshore plant.