South Korea-based shipbuilding group Hyundai Heavy Industries (HHI) has signed a conditional deal to buy Korea Development Bank’s (KDB) 55.7% stake in Daewoo Shipbuilding and Marine Engineering (DSME).

The deal, which was signed in the form of a memorandum of understanding (MoU), will enable HHI to buy a controlling stake in its rival DSME and establish a joint shipbuilding venture with KDB, which holds the largest share in DSME.

As part of the deal, KDB is expected to transfer its entire share in DSME to the new joint venture (JV). KDB will also own a 7% share in the JV, with KRW1.25tn ($1.12bn) worth of preferred shares.

The deal will see HHI owing a 28% stake in the JV, which will control HHI’s shipbuilding unit and Daewoo Shipbuilding.

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KDB and HHI will also provide liquidity support of KRW2.5tn ($2.25bn) to DSME, reported Reuters.

"We will pursue maximum synergy effects from the consolidation while still maintaining competition."

If finalised, the deal will see the privatisation of DSME two decades after the Government of South Korea provided its first set of funding to the company as a result of the Asian financial crisis.

In a statement cited by asia.nikkei.com, HHI said: “The agreement between Hyundai Heavy Industries Group and Korea Development Bank is a solution for the recovery of the domestic shipbuilding industry.

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“We will pursue maximum synergy effects from the consolidation while still maintaining competition.”

KDB revealed its intention to sell its stake in DSME to Samsung Heavy Industries, one of three biggest shipbuilders in South Korea.