Hyundai Heavy Seeks to Acquire DSME

South Korea's "Big Three" shipbuilders may soon become the "Big Two". South Korea’s Hyundai Heavy Industries (HHI) has expressed interest to buy its rival Daewoo Shipbuilding & Marine Engineering (DSME), the local media has reported.

The world’s biggest shipbuilder plans to buy a majority stake in in second-ranked rival from the state-run Korea Development Bank (KDB), WSJ reported quoting people directly involved in the matter.

The move would consolidate HHI's position as the top South Korean shipbuilder and create a new industry giant.

According to the report, a merger between the world’s two biggest shipyards has been in the works for about a year. KDB has repeatedly bailed the ailing yard and has long been eager to unload the DSME stake.

After a series of government bailouts and debt-for-equity swaps, its biggest lender became its biggest shareholder. KDB now owns a 55.7 percent majority stake in DSME.

Hyundai Heavy has submitted a letter of intent to KDB to buy a stake in Daewoo, online news provider Yonhap reported, citing the government. KDB is expected to consider the  formal offer from HHI at a board meeting scheduled for March 31.

Korean shipbuilding industry has long maintained the Big Three system and has focused on three shipbuilders, including HHI, DSME and Samsung Heavy Industries (HHI).

However, as the shipbuilding industry continues to face the crisis of oversupply, it was pointed out that it should be restructured into the Big 2 system. A combination of DSME and HHI would be better-positioned to compete with Chinese rivals, especially state-owned conglomerates CSSC and CSIC.