Hunter Frigg with DSME in the progress

Singapore regulator clears HHI-DSME $1.8 billion tie-up

Hunter Frigg with DSME in the progress
Illustration; Image courtesy: Hunter Group

The Competition and Consumer Commission of Singapore has cleared the proposed merger between Korean shipbuilding majors Korea Shipbuilding & Marine Engineering (KSOE), formerly known as Hyundai Heavy Industries, and Daewoo Shipbuilding & Marine Engineering (DSME).

Illustration; Image courtesy: Hunter Group

The competition authority said the decision was made after it determined that the proposed transaction would not substantially lessen competition, to the detriment of customers in Singapore.

As part of its review, CCCS assessed whether the parties were close competitors and also whether alternative suppliers will be sufficiently strong competitors to the merged entity.

DSME and KSOE overlap in the global supply of commercial vessels, including oil tankers, containerships, LNG carriers and LPG carriers. CCCS’s assessment focused on the largest vessel classes within each of the four vessel types:

  • a. UL/VLCC 200,000+ DWT oil tankers;
  • b. Post-Panamax 15,000+ TEU;
  • c. LNG carriers 40,000+ cu.m.; and
  • d. LPG carriers 60,000+ cu.m.

The competition authority agrees that the two parties are close competitors in the relevant markets, being two of the main global suppliers of UL/VLCC 200,000+ DWT and LNG carriers 40,000+ cu.m.

However, the regulator said that there will be viable alternative suppliers to the duo in the relevant markets following the proposed merger, adding that that alternative suppliers have sufficient excess capacities to satisfy a significant portion of any demand that switches away from the merged entity in the event of a price increase by the merged company.

As disclosed, the parties’ historical bidding data shows that the parties’ bid prices were not systematically higher for contracts where they did not compete with each other. 

“This suggests that there are other close competitors that constrain the parties’ bid prices; and while market concentrations in the relevant markets will be high post-merger, the evidence does not indicate that the proposed transaction will result in coordination or collusion on prices as shipbuilders tend to have private negotiations with customers, which limit price transparency,” the regulator explained.

“After evaluating all the evidence available, CCCS assessed that the Proposed Transaction, if carried into effect, will not lead to a substantial lessening of competition in Singapore.”

The EU has also launched an investigation into the proposed $ 1.8 billion deal amid anti-trust concerns that the acquisition may reduce competition in the shipbuilding markets and result in higher prices.

The European Commission stopped the clock on the merger investigation for the second time on July 13, after establishing that the Coronavirus pandemic was impacting the shipbuilders’ ability to deliver important information to the commission on time.

As the tie-up is likely to remove competition between suppliers of these specific ship types, it will most probably require the Korean duo to offer certain concessions to regulatory authorities in order for the merger to move forward.

The consolidation move is being pursued at a time when the shipbuilding market is facing considerable headwinds from the impact of the pandemic which has quashed interest in newbuilds.

The merger needs to secure approvals from South Korea, the European Union, Japan, China, Singapore, and Kazakhstan. 

The deal got a green light in October 2019 from Kazakhstan, while decisions from regulators in South Korea, China, Japan and the EU are yet to be announced.