DSME privatized after 2 decades to go under Hanwha Group at $1.4 bn

[Photo by Yonhap]

(Updated with additional information)

South Korea’s Daewoo Shipbuilding & Marine Engineering Co. (DSME) is going under the wing of Hanwha Group to put an end to decades-long management by state lender Korea Development Bank since the first bailout in the wake of Asian currency crisis in late 1997.

The privatization scheme at 2 trillion won ($1.4 billion) gained a go-ahead at the ministerial meeting and the board of main creditor Korea Development Bank on Monday.

Hanwha Group is bringing on a major shipyard under its wing after its first attempt did not go through in 2009 amid liquidity woes in the aftermath of the global financial crisis.

The gap in assets with the country’s No. 6 chaebol POSCO Group will be narrowed to 5 trillion won from 16 trillion won with the acquisition.

The M&A process proceeded in a speedy manner after the government go-ahead.

DSME disclosed Monday that it was issuing 104,438,643 new common shares to Hanwha Aerospace, Hanwha System, and four other Hanwha companies at 19,150 won apiece, discounted from previous closing of 22,000 won.

DSME shares jumped 14.32 percent to close at 25,150 won in Seoul on Monday, while Hanwha related shares lost about 5 percent.

DSME has been under state lender KDB for the past 21 years since its first bailout during the 1998 Asian financial crisis. As much as 11.8 trillion won worth state fund has been injected to the shipyard to keep it afloat amid a decade-long industrial slump.

The state lender arranged a DSME merger with Hyundai Heavy Industries which flopped due to opposition from European Union antitrust regulator.

DSME reported an operating loss of 569.6 billion won in the first six months, and its debt ratio soared to 676.4 percent as of the end of June.

A major DSME dockyard was suspended for 51 days until July 22 due to prolonged sit-down strike by subcontract workers demanding a wage hike. The near-two-month-long strike is estimated to have caused 846.5 billion won losses.

DSME could shape up better under a corporate ownership.

Hanwha Group can build an integrated defense system for ground, sea and air security. It has been active in reorganizing the business portfolio with an aim to nurture the defense business as its future growth engine.

With the integrate defense system, the group is expected to make a foray into the maintenance, repair and overhaul (MRO) market and create synergy in defense system exports as well.

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