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Privatization process of Daewoo Shipbuilding and Marine Engineering

Work is underway on privatizing Daewoo Shipbuilding and Marine Engineering, which received trillions of won in public funds to normalize business operations after an episode of fraudulent accounting. According to this plan, the Korea Development Bank (KDB), which is the primary lending bank and the single largest stockholder in Daewoo Shipbuilding, would make a contribution in kind consisting of its entire 55.7% share in the company (worth 2.12 trillion won, or US$1.9 billion) to the integrated shipbuilding company that will be created with Hyundai Heavy Industries Holdings as its largest stockholder. This represents a transformation of South Korea’s key shipbuilding industry from a “big three system” under Hyundai Heavy Industries, Daewoo Shipbuilding and Samsung Heavy Industries into a “big two” system, as well as an industrial restructuring policy aimed at cooling down the excessive competition for cheap projects.

“A conditional memorandum of understanding has been concluded for Hyundai Heavy Industries’ acquisition of Daewoo Shipbuilding. We’re moving forward with the acquisition because of our agreement about the need for Daewoo to be restructured with Hyundai Heavy Industries, which is the core of the shipbuilding industry,” KDB Chairman Lee Dong-gull said during a press conference held on Jan. 31.

“We’ve also approached Samsung Heavy Industries, the other potential buyer, about its attitudes toward acquisition. If we receive an offer from Samsung Heavy Industries, we will compare that with the terms offered by Hyundai Heavy Industries and make our final decision about the acquiring party,” Lee added. In short, Daewoo Shipbuilding will be receiving new ownership 20 years after its financial circumstances began to improve following the bankruptcy of the Daewoo Group in 1999.

World‘s top shipbuilders

This privatization process is different from the normal method, in which a state-funded financial institution sells off its shares to liquidate its position. Instead of recouping the funds it has invested, the KDB has opted to wait several years, until Daewoo Shipbuilding’s operations have been normalized. KDB will be making a contribution in kind of its 59.73 million shares in Daewoo Shipbuilding at the price of 34,922 won (US$31.22) per share to the integrated shipbuilding holding company that is being created under Hyundai Heavy Industry Holdings. In exchange, KDB will be receiving new shares, thus maintaining its original investment. The 7 trillion won (US$6.26 billion) that KDB loaned to Daewoo Shipbuilding will also be kept in place. For its part, Hyundai Heavy Industries has agreed to provide Daewoo Shipbuilding with 1.5 trillion won (US$1.34 billion) of funding through a paid-in capital increase and to provide an additional 1 trillion won (US$893.8 million) if there is a funding shortage later on.

By Jung Se-ra, staff reporter

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