HD Korea Shipbuilding & Offshore Engineering (HD KSOE), the intermediate holding company for HD Hyundai Group’s shipbuilding business, has applied to the Korea Fair Trade Commission (KFTC) for the merger of STX Heavy Industries, a manufacturer of marine engines.
Meanwhile, the Korean shipbuilding industry has submitted comments to the KFTC on the issue of “fear of restriction of competition,” and it is expected that the KFTC will make a decision, after considering the opinions of stakeholders during the merger review.
Under the definitive acquisition agreement, HD KSOE will acquire 6.54 million shares held by Pine Tree Partners and 5.36 million new shares issued through a third-party placement. The acquisition will result in a 35% stake in STX Heavy Industries, with a total transaction value of approximately 81.3 billion won.
STX Heavy Industries mainly produces large engines, and HD KSOE plans to realize synergies with its existing engine business in a number of areas through acquisitions, which are expected to have a positive impact on its shipbuilding business by increasing engine production capacity.
As marine engines account for 10% of the overall shipbuilding cost, this will have a significant impact on the unit cost and profitability of shipbuilding companies, depending on whether they have the capability to manufacture marine engines in-house. For decades, the marine engine market has been dominated by HD Hyundai Heavy Industries, followed by HSD Engines, STX Heavy Industries, and STX Engines. As of January 29th of this year, the total production of HD Hyundai Heavy Industries’ self-developed four-stroke medium-sized engine brand “HiMSEN” has exceeded 15,000 units.
Nevertheless, Hanwha Group challenged the marine engine market by signing an acquisition agreement in February 2023 with HSD Engine, the world’s second-largest manufacturer of marine low-speed engines.
In May 2023, Hanwha Group succeeded in acquiring Daewoo Shipbuilding & Marine Engineering for KRW 2 trillion, and the Korean shipbuilding industry was reorganized into a three-pronged private sector. Analysts believe that the acquisition of Daewoo Shipbuilding & Marine Engineering and its name change to Hanwha Ocean lays the foundation for Hanwha Ocean to compete on a level playing field with HD Hyundai and Samsung Heavy Industries without
any financial subsidies.
HD KSOE and Pinetree Partners entered into a definitive acquisition agreement for STX Heavy Industries on July 31, 2023, a few months after Hanwha Group entered into the acquisition agreement for HSD Engine. Currently, Hanwha Group has received merger review approval from the KFTC in connection with the acquisition of HSD Engine, while HD KSOE is in the review stage.
One year after announcing the signing of the acquisition agreement, Hanwha Group completed the acquisition of HSD Engine in February this year and renamed it Hanwha Engine Co., Ltd (Hanwha Engine), which will help Hanwha Group to secure “total shipbuilding solutions” from engine manufacturing to shipbuilding by utilizing its own production and technology.
As the world’s second largest manufacturer of marine low-speed engines, Hanwha Engine mainly supplies marine low-speed engines to global shipbuilders such as Hanwha Ocean. In 2013, Hanwha Engine successfully commercialized the world’s first dual-fuel marine low-speed engine, and also took the lead in developing and commercializing the world’s first environmentally friendly low-temperature denitrification facility (LP SCR) for marine use in 2014.The LP SCR is an environmentally friendly facility that removes more than 90% of nitrogen oxides (NOx) from exhaust gases.