The South Korean government will draw up a new outline to strengthen the competitiveness of Daewoo Shipbuilding & Marine Engineering Co. (DSME) under state ownership while looking for another viable buyer after the European Commission disapproved and upset the scheme to merge DSME under Hyundai Heavy Industries Holdings Co.’s (HHIH) to create the world’s largest shipbuilder.

In its statement on Thursday (local time), the European Commission said the proposed merger between HHIH and DSME would have created a dominant position in the global market for the construction of large liquefied gas (LNG) vessels, for which there is significant demand from European carriers.

“Given that no remedies were submitted, the merger would have led to fewer suppliers and higher prices for large vessels transporting LNG. This is why we prohibited the merger,” said Executive Vice President Margrethe Vestager in charge of competition policy of the European Commission.

Shares of Korea Shipbuilding & Offshore Engineering Co. (KSOE), HHIH’s shipbuilding holding company, closed 1.62 percent lower at 97,300 won ($81.97) in Seoul on Friday, and DSME unchanged at 25,250 won.

The government in a joint statement expressed “regret” over the disapproval and judged the impact of the M&A collapse won’t impact the Korean shipbuilding industry greatly as the integration had been pursued in 2016 when the industry was devastated from lengthy slump. DSME had been bailed out.

But the conditions have significantly improved from last year, with Korean builders harvesting a rush of orders in high-value and green-fueled carriers.

“Privatization is necessary to normalize DSME in the longer term. In the meantime, main creditor and shareholder Korea Development Bank (KDB) will come up with measures to strengthen the company’s competitiveness with the help of outside consulting firm,” the government said.

KSOE signed a final contract to buy DSME to buy the controlling stake from the KDB in March 2019 and filed for M&A approval in six key nations of which three countries have nodded to the merger while the EU, Korea and Japan have been reviewing it until recently. The M&A no longer can be pursued from the rejection of a major market.

Last year, Korean shipyards bagged combined 68 new LNG carrier orders, or 87 percent of the total 78 orders placed in the world, according to British shipbuilding and marine industry tracker Clarkson Research Services. Of the total, KSOE and DSME brought home orders for respective 32 and 15 LNG vessels, nearly 60 percent of all.

KSOE has successfully secured 3 trillion won ($2.52 billion) worth orders so far this year and thus is planning to focus on technology advancement to maximize its strengths in building eco-friendly vessels amid a surge in demand.

But Europe is home to the world’s top three container shippers – Maersk headquartered in Denmark, Mediterranean Shipping Company S.A. (MSC) of Switzerland, and France’s CMA CGM, and such a dominant position of the Korean shipyards in the future shipbuilding technology has emerged as a new concern to ship owners in regard vessel and LNG fuel prices.

By Moon Gwang-min, Yoon Won-sup and Lee He-yeon

[ⓒ Pulse by Maeil Business Newspaper & mk.co.kr, All rights reserved]