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(LEAD) Daewoo Shipbuilding inks MOU with Hanwha on conditional sale

M&As/ Investment 16:35 September 26, 2022

(ATTN: REWRITES headline, lead; UPDATES with more details from 2nd para)

SEOUL, Sept. 26. (Yonhap) -- Daewoo Shipbuilding & Marine Engineering Co. (DSME) signed a preliminary investment deal with Hanwha Group on Monday, in a move that could put the embattled shipyard in the latter's hands.

Under a memorandum of understanding, Hanwha Aerospace and other Hanwha subsidiaries will participate in DSME's 2 trillion-won (US$1.4 billion) rights offering for a 49.3 percent stake and managerial control, said the state-run Korea Development Bank (KDB), DSME's biggest shareholder.

After the rights issue, the state lender will still hold a 28.2 percent stake in DSME, it added.

The KDB said it will discuss with other creditors measures to smoothly lure investments from Hanwha, the country's seventh-largest conglomerate in South Korea, and put DSME back on track.

Even after the deal with the defense-to-chemicals conglomerate, a so-called stalking horse bid will be conducted for DSME, in which the preliminary bidder suggests its price ahead of an open auction, and other bidders submit their prices later.

This undated file photo shows a crane at Daewoo Shipbuilding & Marine Engineering Co.'s shipyard at Okpo on South Korea's south coast. (Yonhap)

This undated file photo shows a crane at Daewoo Shipbuilding & Marine Engineering Co.'s shipyard at Okpo on South Korea's south coast. (Yonhap)

"After consultations with Hanwha, the KDB decided to conduct DSME's sale in the form of the stalking horse bid," KDB Chairman Kang Seog-hoon told reporters. "The capital increase is expected to help DSME prepare for a possible cash shortage and secure funds for future growth engines."

The KDB will announce a public bid for DSME on Tuesday and potential investors will be given three weeks to carry out due diligence on the shipbuilder, the state lender said.

About two weeks ago, Kang told reporters that the state lender was stepping up efforts for the speedy sale of DSME, which could be a way of salvaging DSME, the world's No. 4 shipbuilder by order backlog.

The KDB has made multiple attempts to privatize DSME since 2001 but failed due mainly to disagreements over price. The state lender and other creditors have injected 4.2 trillion won into DSME since 2015, when the shipyard was hit by a deceptive accounting scandal.

The deal comes as DSME has remained stuck in the red for the past two years, despite strong overseas orders.

The shipbuilder swung to a net loss of 1.69 trillion won on sales of 4.48 trillion won in 2021 after reporting an 86.6 billion-won net profit on sales of 7.03 trillion won a year earlier.

In the first half of this year alone, DSME's net loss reached 667.9 billion won, with its top line coming to 2.43 trillion won.

Despite large losses, DSME has clinched $8.6 billion worth of orders to build 36 ships and one offshore plant, achieving 97 percent of its yearly order target.

Industry observers said Hanwha's potential takeover of DSME could help turn around the beleaguered shipbuilder as the group is expected to better manage it down the road.

DSME shares got a boost from the news, closing at 24,950 won on the Seoul bourse on Monday, up 13.41 percent from the previous session.

In contrast, shares in Hanwha Aerospace and other key Hanwha subsidiaries, which are expected to take over DSME, tumbled nearly 5 percent to 11 percent as the shipyard is projected to continue to lose money in the coming years.

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