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SEOUL, Feb. 12 (Yonhap) -- Hyundai Heavy Industries Co., the world's largest shipyard by sales, is set to buy its smaller local rival Daewoo Shipbuilding & Marine Engineering Co., the state-run Korea Development Bank said Tuesday.
KDB said Samsung Heavy Industries Co., a major South Korean shipyard, has stated its intention not to join the race to take over Daewoo Shipbuilding.
KDB said earlier it would contact Samsung Heavy to see if it is interested in Daewoo Shipbuilding.
Hyundai Heavy and KDB will sign a formal deal in early March, according to the state-run lender. Last month, the two signed a temporary deal.
KDB is Daewoo Shipbuilding's main creditor, with a 55.7 percent stake in the company.
Under the deal estimated at over 2 trillion won (US$1.78 billion), KDB will hand over its Daewoo Shipbuilding stocks to Hyundai Heavy and buy 1.5 trillion won worth of Hyundai Heavy stocks to be issued later. The policy lender will also consider extending 1 trillion won in financial help to Daewoo Shipbuilding.
In return, Hyundai Heavy will be split into two entities, with one to be listed on the market. Hyundai Heavy will also sell its stocks to KDB.
Should the deal proceed as planned, Hyundai Heavy Industries Holdings Co., the parent of Hyundai Heavy, will hold a 26-percent stake in the new entity, with KDB owning 18 percent.
KDB chairman Lee Dong-gull said earlier that the deal is expected to be completed in five to six months.
If the takeover goes ahead, the South Korean shipbuilding industry is expected to be dominated by two major shipbuilders -- Hyundai Heavy and Samsung Heavy.
South Korean shipbuilders, once a cornerstone of the country's economic growth and job creation, had been reeling from mounting losses in the past few years, caused by an industrywide slump and a glut of vessels amid tough competition with Chinese rivals.
The government has been hoping that the local shipbuilding industry can be overhauled in a way that two major players can dominate the sector to better compete against Chinese rivals and tackle sectoral ups and downs.
Daewoo Shipbuilding ended a debt rescheduling program in August 2001 after being told to streamline operations in August 1999. Its parent Daewoo Group collapsed under heavy debt in the wake of the 1997 financial crisis.
In 2009, KDB put Daewoo Shipbuilding back on the block after scrapping a deal to sell a controlling stake in the shipyard to Hanwha Group.
So far, up to 10 trillion won has been spent to salvage Daewoo Shipbuilding.
The combination of the two shipbuilders would create an unrivaled player in the sector. As of last year, Hyundai Heavy had an order backlog totaling 11.14 million compensated gross tons (CGTs), the largest among others in the sector. The comparable figure for Daewoo Shipbuilding was 5.84 million CGTs.
Their combined order backlog accounts for 21.2 percent of the total around the globe.
But industry sources said the takeover may face some hurdles, such as labor unions' strong opposition to the deal and regulatory approval.
The labor unions at Hyundai Heavy and Daewoo Shipbuilding fiercely opposed the deal claiming it could lead to massive layoffs.
Daewoo Shipbuilding's labor union said earlier its member workers will vote on whether to go on a strike later next week in opposition to Hyundai Heavy's takeover attempt.
In addition, the combination of the two major shipyards could reshape the global shipbuilding sector, which means regulatory approval can be key to the completion of the mega deal.