Hanwha Group to Acquire DSME: Six Affiliates Including Hanwha Aerospace to Join 2 Trillion Won Paid-In Capital Increase

Securing a 49% Stake Through Third-Party Allotment
Maximizing Synergy by Combining Naval Defense and Integrated Land-Sea-Air Capabilities
Expansion into LNG, Hydrogen, and Ammonia Transportation and Offshore Wind Power
“Fulfilling Responsibility for National Key Industries Through Business Patriotism”

A large crane installed at Daewoo Shipbuilding & Marine Engineering Okpo Shipyard in Aju-dong, Geoje-si, Gyeongnam, on the afternoon of the 26th.
[Image source=Yonhap News]

[Asia Economy Reporter Choi Seoyoon] Hanwha Group is moving to acquire Daewoo Shipbuilding & Marine Engineering (DSME) by mobilizing six of its affiliates, including Hanwha Aerospace and Hanwha Systems. These affiliates will participate in DSME's 2 trillion won capital increase through a paid-in third-party allotment.

On September 27, Hanwha Group announced that it had signed a conditional investment agreement (MOU) with DSME the previous day, outlining terms related to competitive bidding, due diligence, and possible termination, in order to secure a 49.3% stake in DSME via a 2 trillion won paid-in capital increase. In addition, Hanwha Group and DSME's main shareholder, KDB Industrial Bank, signed a basic agreement to cooperate on normalizing DSME's management in the future.

Regarding the acquisition, Hanwha Group stated, "This move is aimed at creating synergy between our defense and eco-friendly energy businesses. By combining the group’s core competencies with DSME’s world-class design and production capabilities, we aim not only for an early return to profitability but also to grow into a global major player in both defense and eco-friendly energy sectors."

If the deal is completed, Hanwha Aerospace and Hanwha Systems-both of which have similar business characteristics in defense, manufacturing, machinery, orders, and system integration, and have recently shown stable performance-plan to invest 1 trillion won and 500 billion won, respectively.

Additionally, Hanwha Impact Partners (400 billion won), which invests in the group’s new growth engines based on stable dividend income, and three subsidiaries of Hanwha Energy (100 billion won), will participate, bringing the total number of participating affiliates to six.

After detailed due diligence and a fair competitive process, the investors aim to sign the final contract by the end of November 2022 if selected as the final acquirer.

Securing Future Defense Technologies for DSME Through R&D Investment... “Application to Civilian Eco-Friendly and Autonomous Ships”

With this acquisition, Hanwha Group plans not only to enter the shipbuilding industry, which is at the beginning of a “big cycle,” but also to secure new growth engines in its core defense business. Amid heightened global interest in Korean weapon systems due to geopolitical tensions, Hanwha aims to expand its integrated defense production capabilities and global export network.

First, Hanwha Aerospace, which will merge with Hanwha Defense in November, will be able to establish an “integrated land, sea, and air defense system” by acquiring DSME, a leader in naval defense. This will also allow them to fully enter the maintenance, repair, and overhaul (MRO) market.

By sharing customer networks in the Middle East, Europe, and Asia, Hanwha Aerospace and Hanwha Systems expect to increase exports of their weapon systems, as well as DSME’s core defense products such as 3,000-ton-class submarines and warships.

Future defense technologies secured through increased R&D investment in DSME could also be applied to civilian merchant vessels. Hanwha Systems, which supplies virtually 100% of combat management systems (CMS)-the “brains” of warships-to the Republic of Korea Navy, can combine its advanced maritime systems technology with DSME’s mass production capabilities to develop autonomous civilian ships. In addition, Hanwha Defense’s technology for eco-friendly energy storage systems (ESS) already installed in submarines could be applied to eco-friendly ships, where demand is expected to surge.

Building an “Energy Value Chain” from Production to Transportation to Power Generation... “Expanding LNG Business Across All Sectors”

Hanwha Group plans to solidify its position as a “global green energy major” by leveraging DSME’s shipbuilding and offshore technology, at a time when the global energy transition is accelerating due to climate change and energy security issues.

In particular, Hanwha aims to maximize synergy with DSME in the liquefied natural gas (LNG) sector, which is considered a “bridge technology” for energy transition and has recently seen prices soar.

Hanwha Group already has a business structure that imports LNG from the United States and uses it for power generation at Tongyeong Eco Power. By adding DSME’s LNG offshore production technology (FLNG), LNG carrier construction, and regasification facilities (FSRU) at coastal sites, Hanwha will be able to expand its business across all areas of the rapidly growing LNG market.

By linking Hanwha Solutions’ globally competitive solar power generation business, Hanwha Impact’s hydrogen co-firing power generation technology, and Hanwha Corporation’s ammonia business as an energy storage medium with DSME’s energy transportation business, the group can newly establish an eco-friendly energy value chain spanning production, transportation, and power generation.

Furthermore, by utilizing DSME’s competitive wind turbine installation vessels (WTIV), Hanwha Solutions can actively enter the offshore wind power market in the United States and Europe, while Hanwha Construction can do so domestically.

Photo by Hanwha Group

Securing 41 Trillion Won in Orders Amid Favorable Business Environment... “Early Return to Profitability Through Synergy”

Hanwha Group believes that the shipbuilding industry is entering a second “big cycle” since the mid-2000s, driven by replacement demand for aging LNG carriers, new demand for eco-friendly ships due to stricter International Maritime Organization (IMO) environmental regulations, and increased ship orders leading to dock competition.

Having already resolved a significant portion of low-priced orders and addressed insolvency through asset revaluation, DSME currently holds an order backlog worth $28.8 billion (about 41 trillion won), which will keep its yards busy for the next three and a half to four years. The recent rise in the won-dollar exchange rate is also expected to significantly improve profitability. In addition, new businesses such as expanded defense exports, entry into offshore wind power, and growth in the eco-friendly energy transportation market are expected to enable an early turnaround.

Coexistence with Local Communities, Partners, and Labor Unions... “Fulfilling the Social Responsibility and Role of a Large Corporation”

Having invested in the space sector-long considered a technological wasteland in Korea-Hanwha Group is approaching the DSME acquisition with a commitment to supporting a key national industry.

Beyond simple profit generation, Hanwha aims to foster mutual growth with the local community of Geoje, Gyeongnam, where DSME is located, through investment, job creation, and export expansion. The group also plans to build sustainable partnerships with local root industries, such as shipbuilding equipment suppliers and subcontractors.

With extensive experience in successful mergers and acquisitions across various fields, Hanwha Group plans to establish a rational labor-management relationship based on trust through active dialogue with labor unions.

A Hanwha Group representative stated, “This acquisition is not only about maximizing business synergy for the group, but also about fulfilling our social responsibility and role as a large corporation by investing in national key industries. We will actively pursue this with a spirit of serving the nation through business.”

This content was produced with the assistance of AI translation services.