STX Shipbuilding and Samsung Heavy Industries may be forcibly merged by the government

One was once the world's fourth-largest shipbuilding company, and the other was the world's largest medium-sized shipbuilding company. Now, these two South Korean shipyards may face a forced merger.

The South Korean government plans to merge STX Shipbuilding and Dongjo Shipbuilding.

According to the latest reports from South Korean media, the South Korean government plans to merge STX Offshore & Shipbuilding and Dongjo Shipbuilding, and will hold a meeting next month to discuss the merger.

Currently, STX Shipbuilding is managed by the Korea Development Bank (KDB), while Dongjo Shipbuilding is managed by the Export-Import Bank of Korea. The creditor banks of the two shipyards are conducting due diligence, and the results are expected to be released next month. The South Korean government plans to streamline and merge the two shipyards based on the investigation results.

To date, the Korea Development Bank has invested 4.5 trillion won (approximately US\$4 billion) in STX Shipbuilding. Since 2013, STX Shipbuilding has been undergoing debt restructuring under the control of creditors. Last June, to avoid the bankruptcy liquidation of STX Shipbuilding, the Seoul Central District Court agreed to take over STX Shipbuilding to help it restructure and recover. Last month, STX Shipbuilding ended its receivership ahead of schedule; however, creditors are not optimistic about the future of STX Shipbuilding. The Korea Development Bank stated that STX Shipbuilding's operating costs far exceed those of other companies in the industry, severely limiting the profits generated from new contracts, making it very difficult to issue guarantees at present. Creditors believe that STX Shipbuilding's indirect costs are too high, and only by reducing the number of regular employees from 1430 to around 700 and annual production capacity from 30-35 ships to 15-20 can cost competitiveness be ensured.

Dongjo Shipbuilding signed a voluntary restructuring agreement with the Export-Import Bank of Korea in April 2010. Since then, Dongjo Shipbuilding has received more than 4 trillion won (approximately US\$3.6 billion) in capital injection. However, due to similar reasons as STX Shipbuilding, the situation of Dongjo Shipbuilding has not improved. Dongjo Shipbuilding's backlog of orders is expected to be completed later this year.

STX Shipbuilding was once one of the world's four shipbuilding giants.

STX Shipbuilding was once the world's fourth-largest shipbuilding company and one of the four major shipbuilding giants in South Korea. However, with the continued decline of the shipbuilding industry, STX Shipbuilding has been sluggish for a long time and its losses have increased. Since 2013, STX Shipbuilding has been undergoing debt restructuring under the control of creditors. STX Shipbuilding applied to the court for receivership in South Korea last May and prepared a new restructuring plan, including asset sales, cost reduction, and debt-to-equity swaps. Last June, to avoid the bankruptcy liquidation of STX Shipbuilding, the Seoul Central District Court agreed to take over STX Shipbuilding to help it restructure and recover. On November 11, the Seoul Central District Court announced its approval of STX Shipbuilding's self-rescue restructuring plan.

In May of this year, STX Shipbuilding sold all 66.66% of its shares in its subsidiary STX France for approximately 100 billion won. In July, the Seoul Central District Court announced the end of the receivership proceedings for STX Offshore & Shipbuilding, and STX Shipbuilding became a normal company that could participate in marketing and order taking. In addition, problems with the issuance of guarantees, letters of credit, and bills of exchange were also resolved.

Since the beginning of this year, with the recovery of the shipping market, STX Shipbuilding has received multiple orders, including 3+1 11200-dwt product oil tankers from two South Korean shipowners. It also delivered a 6500 cubic meter LNG bunkering vessel to Shell Western LNG B.V. According to International Ship Network, STX Shipbuilding's Zhenhai shipyard currently has 11 orders on hand, including 6 chemical tankers, product tankers 4 LPG carriers 1, and 5 new chemical tankers signed in 2017.

However, recently, STX Shipbuilding was exposed to a major safety accident. An explosion on a ship under construction resulted in 4 deaths. Preliminary investigations show that STX Shipbuilding has safety management loopholes. Obviously, such a major safety accident at this time is extremely unfavorable to STX Shipbuilding.

Dongjo Shipbuilding was once the world's largest medium-sized shipbuilding company.