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(News Focus) FTC approval clears way for Hanwha's DSME takeover, though challenges remain

16:15 April 27, 2023

By Kim Seung-yeon

SEOUL, April 27 (Yonhap) -- The South Korean antitrust regulator's conditional approval of the plan to take over Daewoo Shipbuilding & Marine Engineering Co. (DSME) removes the last hurdle for Hanwha Group's push to become a global leader in the defense and energy sector.

But it also leaves Hanwha, the seventh-largest conglomerate in the country, with the tasks of having to meet the requirements set forth by the regulator while putting the troubled shipbuilder back on track for growth.

Earlier in the day, the Fair Trade Commission (FTC) approved Hanwha's proposed acquisition of DSME, on condition that it take "corrective measures" to prevent potential anti-competition practices.

Under the FTC directives, Hanwha needs to report to the FTC every six months for the next three years on measures it took to not discriminate against other rivals in the pricing of equipment for military vessels.

Hanwha must not "unfairly" refuse to provide information about equipment to rival companies when they request it via the country's arms procurement agency, according to the FTC.

Hanwha holds more than a 50 percent market share for 10 critical components used in military vessels, including radars, communication and navigation devices, and launchers.

The photo shows Hanwha Group's headquarters in Seoul on April 27, 2023. (Yonhap)

Based on Hanwha's reports, the FTC will decide whether to extend the review scheme.

Responding to the FTC decision, Hanwha stressed it decided to accept it out of the need to quickly normalize DSME and its commitment to doing its part in boosting the national competitiveness.

"We decided to accept the authorities' decision from a broader viewpoint of quickly normalizing the management of DSME and strengthening the national competitiveness through nurturing a core industry, despite the managerial limitations due to the conditional approval," Hanwha said in a release.

"We believe that we cannot miss that golden hour," it said.

Hanwha said it will comply with the FTC's requirements.

The FTC's approval came last as Hanwha had received the green light from other foreign anti-competition authorities in six other countries and the European Union.

Excluding the EU, it has obtained the approval from Turkey, Britain, Japan, Vietnam, China and Singapore, since it announced the takeover plan in September last year.

With the FTC approval, Hanwha said it will accelerate efforts to finalize the acquisition process, through taking part in DSME's rights offering in May and other procedures that need to go through shareholders and board meetings.

Hanwha will take part in the 2 trillion-won (US$1.49 billion) rights offering to acquire a 49.3 percent stake and managerial control in DSME, the world's fourth-largest shipbuilder.

An FTC official speaks during a media briefing on its conditional approval of Hanwha's proposed DSME takeover at the FTC headquarters in Sejong, 112 kilometers south of Seoul, on April 27, 2023. (Yonhap)

Hanwha Aerospace Co.; Hanwha Systems Co., its key defense and energy equipment arms; and three other Hanwha affiliates will take part in the rights offering to buy the stake.

Hanwha faces a tough road ahead until it gets DSME back on track for growth.

The embattled shipbuilder posted an operating loss of 1.61 trillion won for 2022 and has a cumulative loss of 3.4 trillion won for the past two years. Its debt ratio spiked to 1,542.4 percent at the end of last year.

The shipbuilder is expected to post another big quarterly loss in the first quarter of this year.

Analysts expect the debt ratio will sharply decline to around 418 percent once the 2 trillion won is injected from Hanwha.

Hanwha said it will turn the shipbuilder, tentatively named Hanwha Ocean, into one of the most innovative companies by combining Hanwha's defense capabilities and DSME's edge in design and shipbuilding.

Hanwha has pledged to expand its defense business into the "Lockheed Martin of South Korea" by integrating its global capabilities covering "space, ground and sea," at a time when global demand for Korean weapons systems is gaining traction amid geopolitical uncertainties.

DSME's client networks in the Middle East, Europe and Asia will mean more opportunities for exports of the weapons systems and Daewoo's warships and submarines.

Hanwha can also bolster its liquefied natural gas (LNG) portfolio with Daewoo's floating LNG facility and LNG carriers.

The acquisition also means the end of a long debt rescheduling program for DSME that dates back to 2001. Hanwha tried to buy DSME in 2008 for 6.32 trillion won, but it fell through in the wake of the global financial crisis.



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