Ships are under construction at a shipyard of Daewoo Shipbuilding & Maritime Engineering in South Korea. Photo courtesy of DSME

Korean conglomerate adds weight

South Korea’s defense giant Hanwha Group has acquired Daewoo Shipbuilding & Maritime Engineering (DSME) by receiving approval from the country’s antitrust agency on April 27.

Hanwha Group plans to rebrand the shipbuilder to Hanwha Ocean to become one of many subsidiaries of South Korea’s seventh-largest conglomerate.

Last September, Hanwha Group agreed with Korea Development Bank to take part in the latter’s rights offering for a 49.3% stake in DSME worth $1.4 billion.

The deal has won the green light from many countries and regions, including the European Union, the United Kingdom, Japan, China, Vietnam, Turkiye, and Singapore.

South Korea’s Fair Trade Commission was the latest to do so. In addition, the watchdog’s approval was conditional due to concerns about strong market power.

As a result, Hanwha and DSME should not share trade secrets with other units, and they are also banned from providing vessel parts at discriminatory prices to other companies.

Hanwha is practically the only supplier of around 10 crucial components used in military ships, like navigation systems and radar.

The two corporations are obliged to comply with the instructions over the next three years and come up with biannual progress reports, according to the Fair Trade Commission.

Observers pointed out that it was the right decision for Korea Development Bank to sell off DSME to wrap up two decades of government control.

Since 2001, the state-run lender has owned debt-ridden DSME, which received public funds of up to $2 billion to rehabilitate. But DSME has failed to overcome financial losses and managerial crises.

Seven years later, Hanwha Group decided to take over the shipbuilder at $4.2 billion, but the contract collapsed in the midst of the global financial tsunami and the resultant economic downturn.

“DSME can turn around only through private hands. As Hanwha Group holds many businesses in the defense industry, it will be able to create a synergy effect,” Prof. Sung Tae-yoon at Yonsei University said.

After the merger, DSME is expected to compete with major South Korean rivals, such as Hyundai Heavy Industries and Samsung Heavy Industries.