Floating Liquefied Natural Gas of Hyundai Heavy Industries/Courtesy of Hyundai Heavy Industries

Political dispute may affect M&A deal

Earlier this year, Hyundai Heavy Industries (HHI) agreed to buy a 55.7-percent stake in Daewoo Shipbuilding & Marine Engineering (DSME) at $1.7 billion from the Korea Development Bank.

The deal involving the world’s two largest shipyards are subject to anti-monopoly reviews both at home and abroad including China, Japan, the United States, and the European Union.

The consensus has been that the countries would not veto the deal. The EU and Japan were also projected to give conditional approval requiring HHI to reduce the capacity of LNG carriers.

The two companies combine to account for just over 20 percent market share of the global order book. But they carve out a majority of the market for such ships as LNG carriers.

However, the recent political tension between Korea and Japan may prompt the latter to block the contract, according to senior unionists of HHI and DSME.

We originally thought that Japan will give a conditional approval so that its shipbuilders will benefit,” HHI union’s spokesman Kim Hyeong-gyun told The Korea News Plus.

But the latest political dispute between the two countries may lead Japan to block the deal. In the case, the acquisition will fall apart, and that’s what we want to see.”

Kim said that the government and the Korea Development Bank should re-start the process of selling DSME shares from the beginning in a proper and transparent way.

DSME union’s policy director Ha Tae-joon presented a similar analysis.

We initially expected a conditional go-ahead from Japan. But now we are not sure. We may see how things will evolve,” Ha said.

Early this week, Japan also announced strict restrictions on exports of key high-tech materials, which Korean electronics firms use to make semiconductors and smartphones.

The measure, which came due to a growing dispute between the two neighbors over wartime forced labor issues, is expected to affect Korea’s two largest firms of Samsung Electronics and SK hynix.

Seoul vows to strike back by bringing the case to the World Trade Organization and coming up with retaliatory steps. In the case, Japan would not sit idly, and such a tit-for-tat fight is feared to weigh on the economy of the two neighbors.

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