HHI-DSME merger gets green light from Kazakhstan

Hyundai Heavy Industries Group (HHI) has been given a green light to acquire Daewoo Shipbuilding & Marine Engineering (DSME) in Kazakhstan. This is the first approval the shipbuilder has received for the merger. Hyundai plans to complete the tie-up by the first half of next year but opposition from labor unions and soured South Korea-Japan relations could act as a variable in the merger.

HHI said on Tuesday that the Kazakhstani competition authority recently notified the shipbuilder of their decision to approve the merger between HHI and DSME. The competition authority made the decision based on the findings of reviews that the tie-up would not undermine fair competition in the shipbuilding industry in Kazakhstan. The authority’s green light came less than three months after the shipbuilder submitted application for approval. HHI is not operating a business in Kazakhstan at the moment but it needed an approval from the competition authority since 3 trillion won worth of DSME’s oil production plant project, which the company earned the order contract in 2014, is currently underway in Kazakhstan.

HHI signed a formal agreement with the Korea Development Bank (KDB), the biggest shareholder of DSME, to acquire DSME in March this year and started dialogue with the EU competition authority in April. The shipbuilder went on to seek regulatory approval in South Korea and China in July, Kazakhstan in August, and Singapore in September. HHI is scheduled to complete the preliminary review process in November and submit an application for merger. HHI also began the preliminary review process with Japan’s competition authority in September. The shipbuilder aims to receive regulatory approval from six countries, including Kazakhstan. HHI’s proposed merger with DSME will fall through if only one of the relevant competition authorities does not grant approval.

The South Korean shipbuilding industry expects that the review process would be completed without much difficulty in South Korea, China, and Singapore. In particular, China has lost a cause to oppose to the merger since its competition authority approved the merger between CSSC and CSIC, the country’s top two shipbuilders, on Friday.

On the other hand, it is the EU and Japan, which are likely to play a key role in the merger. The EU is considered the region with the toughest competition law in the world. It is also home to large customers of HHI and DSME. European companies could oppose to the merger out of concern that the tie-up would increase the cost of shipbuilding. Furthermore, a group of South Korean labor unions, which includes Korean Confederation of Trade Union, Korean Metal Workers Union, and the Korean Alliance of Progressive Movements, has recently urged the EU’s commission not to approve the merger between the two South Korean shipbuilders.

The European Commission carries out a full investigation after the pre-notification process. The investigation can take about four to six months, which means HHI could receive approval from the EU’s competition authority in May next year at the earliest if it submits an application for investigation next month.


warum@donga.com