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EU resumes probe of KSOE-DSME merger

The European Union’s antitrust regulator is resuming an investigation into a proposed merger of two Korean shipbuilders that it suspended last year.

The European Commission announced Monday that it is resuming a probe into Korea Shipbuilding & Offshore Engineering’s (KSOE) acquisition of Daewoo Shipbuilding & Marine Engineering (DSME). The probe is planned to be finalized by Jan. 20.

In 2019, KSOE signed a deal with the state-run Korea Development Bank (KDB) to take over DSME for $1.8 billion. DSME is 55.7 percent owned by the KDB.

KSOE is part of the world’s largest shipbuilding company, Hyundai Heavy Industries (HHI) Group, which has 16.6 percent of the current order backlog for ships globally. The HHI Group includes Hyundai Heavy Industries (HHI) and Hyundai Mipo Dockyard.

In terms of the world’s shipbuilding market, DSME ranks fourth for market share, 6 percent. Together, KSOE and DSME control more than 20 percent of the world’s shipbuilding market.

The European Commission halted its investigation into the acquisition several times in the past, citing a lack of data. The last time was in July 2020.

“The probe has been resumed because we sufficiently answered the questions by the European Union antitrust regulator,” said a spokesperson for KSOE. “We will do our best to receive approval from the authorities of the remaining three [regions] that include the European Union, Korea and Japan.”

The European Commission’s decision could affect the decisions of Korea and Japan.

Kazakhstan, Singapore and China already gave green lights to the acquisition.

The European Commission has expressed concerns that the deal could remove DSME as an essential competitive force in the markets for large container ships, oil tankers, liquefied natural gas and liquefied petroleum gas carriers, and possibly create monopolies in these segments, according to a report from Offshore Energy, a Netherlands-based trade publication.

DSME and HHI Group have 91 LNG carriers on order, which is around 60 percent of the world’s orders, according to VesselsValue, an online valuation and data provider based in London.

Analysts say a delayed decision by the European Commission is having an impact on DSME’s status in the market.

Uncertainties around the merger are “an obstacle” for DSME valuation, said Kim Hyun, an analyst at Meritz Securities. “If the EU continues to delay the approval, the deal could be canceled. The longer the decision is delayed, the worse DSME’s financial structure will become.”

DSME’s total liabilities as of the third quarter were 7.66 trillion won ($6.85 billion), up 19 percent from 6.45 trillion won as of the end of 2020. Its consolidated third quarter net loss was 54.48 billion won, up 86 percent from a 29.21 billion won net loss in the same quarter last year.


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