Hanwha Group Accepts Fair Trade Commission's 'Conditional Approval' of Daewoo Shipbuilding & Marine Engineering Merger

Hanwha Group has passed the final hurdle for the acquisition of Daewoo Shipbuilding & Marine Engineering (DSME). On the 27th, the Fair Trade Commission decided to grant conditional approval for the Hanwha-Daewoo Shipbuilding merger review.

Despite the managerial restrictions imposed by the conditional approval, Hanwha has decided to accept the authorities' decision from a grand perspective of promptly normalizing the management of Daewoo Shipbuilding, which is experiencing deteriorating business performance, and strengthening national competitiveness through fostering key industries.

Data provided by Hanwha Group

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Hanwha plans to comply with the corrective measures proposed by the Fair Trade Commission, including prohibitions on price and information discrimination for certain ship parts.

Hanwha Group plans to swiftly complete the acquisition process next month by participating in DSME's paid-in capital increase and going through the director appointment procedures at the shareholders' meeting. As a result, DSME will raise the anchor of management normalization for the first time in 22 years since its workout in 2001.

Next month, five Hanwha Group companies?Hanwha Aerospace, Hanwha Systems, Hanwha Impact Partners, and two subsidiaries of Hanwha Energy?will participate in DSME's paid-in capital increase worth approximately 2 trillion KRW. Through this, they will secure a 49.3% stake in DSME, becoming the largest shareholder.

Hanwha's strategy is to combine the group's core competencies with DSME's global-level design and production capabilities to not only achieve early management normalization of DSME but also to grow it into a 'global innovative company' pioneering a sustainable marine energy ecosystem.

Furthermore, beyond simple profit generation, Hanwha plans to contribute to strengthening national competitiveness through job creation and expanding K-defense exports. In particular, it is expected to provide significant vitality to the revitalization of the Geoje region's economy and regional development, which have been stagnant due to the prolonged downturn in the shipbuilding industry.

Despite managerial restrictions caused by corrective measures in the defense sector, a grand decision was necessary for the acquisition of DSME.

Hanwha made the decision to acquire DSME, bearing the risks of business performance and regulatory corrective measures, from a patriotic business perspective to not miss the golden time for management normalization and to rebuild national key industries and globally advance K-defense.

The management situation of DSME has continued to deteriorate even after the signing of the acquisition MOU in September last year, making urgent capital injection through a paid-in capital increase necessary. The deficit over the past two years has reached 3.4 trillion KRW, and the debt ratio stands at 1600%.

Provided by Hanwha Group

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In the first quarter of this year, when a turnaround was expected, DSME is the only one among the three major shipbuilders expected to incur a large loss compared to the plan. It has recorded losses for 10 consecutive quarters since the fourth quarter of 2020. It has also failed to conduct aggressive order acquisition. Despite the shipbuilding industry's cyclical upswing, order performance sharply dropped from 4.2 billion USD (approximately 5.6267 trillion KRW) in the first quarter of last year to 800 million USD (approximately 1.0717 trillion KRW) this year. This is a poor performance compared to competitors.

The outflow of key personnel and labor shortages are also serious issues. More than 160 employees moved to competing companies last year. Particularly problematic is the outflow of deputy managers and managers, who are the core of practical work, and special ship design personnel. The number of DSME employees, which was 13,000 about 10 years ago, decreased by about 5,000 to 8,300 at the end of last year.

With the acquisition of DSME, Hanwha will establish a foundation for growth into a bona fide global defense company by equipping an 'integrated land, sea, and air system' that encompasses marine in addition to existing space and ground defense sectors.

Moreover, at a time when global energy transition is accelerating due to climate crisis and energy security issues, Hanwha plans to solidify its position as a 'global green energy major' through DSME's shipbuilding and marine technologies.

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