China’s State Administration for Market Regulation has approved the proposed merger between South Korean shipbuilders Hyundai Heavy Industries (HHI) and Daewoo Shipbuilding and Marine Engineering (DSME)
The companies have been informed that the merger proposal does not breach Chinese antitrust laws. In seeking to acquire DSME, HHI group has reorganised, dividing the company into two entities – Korea Shipbuilding & Offshore Engineering Co (KSOE), a subholding company governing shipbuilding units under the group, and a reorganised Hyundai Heavy Industries.
KSOE will manage HHI Group’s shipbuilding units – Hyundai Heavy Industries, Hyundai Mipo Dockyard Co and Hyundai Samho Heavy Industries Co. South Korea’s Yonhap News Agency recently reported that KSOE received a notice from the State Administration for Market Regulation stating that the merger will not violate any antitrust laws or undermine fair competition in China.
However there are still significant hurdles. In 2018, Japan filed a complaint against DSME at the World Trade Organisation (WTO), claiming that the company had distorted market prices by taking shipbuilding orders at lower rates following an injection of 1.2Tn won (US$1.10Bn) in public funds into the company.
In 2020, Japan filed a petition with the WTO claiming that DSME’s largest shareholder, the state-owned Korea Development Bank sold its shares to HHI at an abnormally low price. Japan also maintained that the lending, guarantee and insurance provided to DSME by the state-owned entities Korea Development Bank, the Export-Import Bank of Korea and the Korea Trade Insurance Corp violated the WTO agreement on subsidies and countervailing measures (SCM agreement).
The European Commission started its review process into the merger in November 2020.
European Commission executive vice-president Margrethe Vestager said “Cargo shipbuilding is an important industry for the European Union. Maritime transport represents a substantial portion of the EU’s internal and external freight trade, with European shipping companies regularly purchasing vessels from DSME and HHI, two of the leading cargo shipbuilders in the world. This is why we will carefully assess whether the proposed transaction would negatively affect competition in the construction of cargo ships, to the detriment of European consumers.”
South Korea’s antitrust body, the Fair Trade Commission, is also reviewing the merger.
In addition to South Korea, the HHI-DSME merger requires regulatory approval from competition law authorities in five other territories: China, Japan, Kazakhstan, the EU and Singapore. China’s approval follows approvals from the authorities in Kazakhstan and Singapore.
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