Hanwha Solutions Vice Chairman Kim Dong-kwan, left, and HD Hyundai President Chung Ki-sun applaud during the Korea H2 Business Summit at KINTEX in Goyang, Gyeonggi Province, in this September 2021 file photo. Newsis

STX Heavy Industries mentioned as next target of both conglomerates

By Park Jae-hyuk

Hanwha Group participated in a preliminary bid to acquire a controlling 47.8 percent stake in STX Heavy Industries, a manufacturer of engines for ships, from a local private equity firm, Pinetree Partners, according to industry officials, Tuesday.

The latest move by the nation's seventh-largest conglomerate is expected to intensify competition between Hanwha and HD Hyundai in the global shipbuilding market.

HD Hyundai, which changed its name from Hyundai Heavy Industries (HHI) Group, is the parent of Korea Shipbuilding & Offshore Engineering that also submitted a letter of intent to acquire STX Heavy Industries.

In contrast to Hanwha Group which declined to confirm its participation in the bid, HD Hyundai said earlier this month that it seeks to take over STX Heavy Industries, in order to cope with soaring demand for engines for ships.

"We will be able to diversify our portfolios into small- and medium-sized engines and create synergy effects with the group's shipbuilding subsidiaries," HD Hyundai said at that time.

Since Hanwha Group signed a 2 trillion won ($1.5 billion) deal earlier this month to acquire a controlling 49.3 percent stake in Daewoo Shipbuilding & Marine Engineering (DSME) from Korea Development Bank, industry officials have anticipated that it will be inevitable for the conglomerate to face off with HD Hyundai, the nation's leading shipbuilding group.

Their rivalry has especially drawn attention, because each group's third-generation heirs are well known for their friendship.

HD Hyundai President Chung Ki-sun, who was born in 1982, is just a year older than Hanwha Solutions Vice Chairman Kim Dong-kwan. Kim was also among some 100 guests who were invited to Chung's wedding in July 2020.

Both heirs have expanded their presences lately, representing each of their groups. When Saudi Crown Prince Mohammed bin Salman Al Saud visited Seoul last month, they participated in the crown prince's meeting with Korean business leaders.

If Hanwha Group succeeds in acquiring STX Heavy Industries, the group will be able to vertically integrate its shipbuilding supply chain. Unlike HD Hyundai that owns a manufacturer of engines for ships, DSME has relied on several suppliers of engines including STX Heavy Industries.

However, there are still doubts as to whether Hanwha Group can afford to buy STX Heavy Industries, after spending 2 trillion won for the DSME acquisition.

The 47.8 percent stake in STX Heavy Industries is estimated at around 100 billion won. In addition, Hanwha Group needs to finance DSME to normalize the financial structure of the cash-strapped shipbuilder that has suffered cumulative losses for seventh straight quarters.

According to industry officials, a couple of PEFs also participated in the preliminary bid to acquire STX Heavy Industries. HSD Engine, another manufacturer of engines for ships, had once been mentioned as one of the bidders, but the company officially denied the rumor through a regulatory filing on Dec. 16.