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Hanwha Signs Agreement to Assume Control of Daewoo Shipbuilding

Privatization of South Korea's third largest shipbuilder is proceeding with a signing of an agreement with Hanwha and DSME

Posted on December 19, 2022

The rescue plan for South Korean shipbuilder Daewoo Shipbuilding & Marine Engineering (DSME) is moving forward with the signing of the agreement for Hanwha Group, one of South Korea’s largest conglomerates, to acquire management control of the shipbuilder. Completion of the agreement came after nearly 20 years of control by the state-owned Korea Development Bank and several failed previous attempts to privatize the shipbuilder.

Under the terms of the agreement Hanwha through its aerospace, technology, and energy groups, will provide approximately $1.5 billion in paid-in working capital in the form of newly issued shares of DSME. Hanwha secures a 49.3 percent stake in Daewoo Shipbuilding & Marine Engineering and becomes the largest shareholder, while Korea Development Bank’s position is lowered to 28.2 percent making it the second largest shareholder.

Hanwha also gains management control of the shipbuilder under the agreement. The terms call for the termination of a management normalization plan launched by DSME last summer when the company said it was in a financial crisis after a crippling 50-day strike. In addition, Hanwha’s agreement is also conditional on the submission of resignations from all registered directors of DSME.

“Once the acquisition process is completed, Hanwha will be able to lay the foundation for growth as a global defense company in name and reality by having a land, sea, and air integrated system that encompasses the existing space and land defense industries as well as the ocean,” the company said in a statement. They cited the strengths of combining Hanwha’s marine system technology with Daewoo Shipbuilding’s capacity to mass-produce ships, commercial ships capable of autonomous navigation, and Hanwha’s eco-friendly energy storage system technology, which is currently being applied to submarines, that can be used to develop eco-friendly ships.

In addition, Hanwha expects that a new green energy value chain can be established by combining its energy sector capabilities, such as LNG, ammonia, hydrogen, and wind power, with Daewoo Shipbuilding’s energy production facilities and transportation technologies. They expect to share customers in the Middle East, Europe, and Asia to increase exports of not only Hanwha’s weapon systems but also Daewoo Shipbuilding’s flagship products, submarines and warships.

Hanwha had made a previous proposal to acquire DSME in 2008. KDB later agreed to a merger of the shipbuilder with Hyundai, but that was canceled due to objections by the European Union which cited a dominance in the market to build LNG carriers. Earlier this year, the directors of KDB said the shipyard needed to be privatized with a buyer that could invest in new systems and technologies for the future of the operation.

The deal is expected to close in the first quarter of 2023 after they receive regulatory approvals from Korea’s Fair Trade Commission as well as the EU, Japan, China, Singapore, Turkey, Vietnam, and UK competition authorities. It also requires approval by Korea’s Minister of Trade, Industry and Energy for the sale of defense companies under the Defense Acquisition Act.

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