Looking to seize the Chinese market? South Korean shipbuilding giant successfully acquired STX Heavy Industries

HD Hyundai Group's successful acquisition of STX Heavy Industries, a South Korean ship engine manufacturer, strengthens its position as a global shipbuilding giant with the world's largest marine engine manufacturing capabilities. This acquisition will bolster its development of eco-friendly dual-fuel engines, expand large engine production capacity to meet its own needs, and further capture market share in China and other overseas markets.

Investing $64 million to acquire a 35% stake, Korea Shipbuilding & Offshore Engineering becomes the largest shareholder of STX Heavy Industries.

On July 31, HD Korea Shipbuilding & Offshore Engineering, the shipbuilding holding company of HD Hyundai Group (formerly Hyundai Heavy Industries Group), announced the signing of a formal contract with PineTree Partners, a South Korean private equity firm, to acquire the marine engine manufacturer STX Heavy Industries. HD Korea Shipbuilding & Offshore Engineering will invest 81.3 billion KRW (approximately $64 million) to acquire 6,524,174 shares held by PineTree Partners and 5,364,670 newly issued shares through a third-party allocation, thereby obtaining a 35% stake in STX Heavy Industries and becoming its largest shareholder.

Last December, four to five companies, including Korea Shipbuilding & Offshore Engineering, Hanwha Group, and Socius, a South Korean private equity firm (PEF), participated in the pre-bidding for the sale of STX Heavy Industries shares. On March 2 this year, the formal bidding for the sale of STX Heavy Industries shares commenced, with Korea Shipbuilding & Offshore Engineering being the only company to participate in the formal bidding.

According to industry sources in South Korea, although Hanwha Group and Socius expressed acquisition intentions during the pre-bidding and due diligence phases, leading to a multi-party competition, ultimately, only Korea Shipbuilding & Offshore Engineering participated in the formal bidding. This signifies that Korea Shipbuilding & Offshore Engineering was effectively designated as the acquirer of STX Heavy Industries.

It is understood that Hanwha Group had shown significant interest in acquiring STX Heavy Industries, but after signing a memorandum of understanding (MOU) on February 16 this year to acquire a 33% stake in HSD Engine (formerly Doosan Engine), a South Korean marine engine manufacturer, it decided to withdraw from the formal bidding for STX Heavy Industries shares.

  STX Heavy Industries, a subsidiary of the former STX Group, was established in February 2004 and primarily engages in the manufacturing of marine engines, land-based power generation engines, and related shipbuilding equipment. Following the dissolution of the STX Group, STX Heavy Industries entered into a restructuring process in August 2016.

In March 2018, STX Heavy Industries selected PineTree Partners and GlobalSeAH as preferred bidders. Subsequently, PineTree Partners acquired its main engine-related business unit for 98.7 billion KRW (approximately $92.6 million) by acquiring newly issued shares and corporate bonds of STX Heavy Industries, representing approximately 66.1% of the total shares. PineTree Partners then reduced its stake through bulk processing and on-market sales. In addition, GlobalSeAH acquired STX Heavy Industries' platform business unit for 16.1 billion KRW (approximately $15 million). Four years after acquiring the main engine-related business unit of STX Heavy Industries, PineTree Partners decided to sell its controlling stake in 2022.

With the recovery of the shipbuilding market in recent years, STX Heavy Industries' financial structure is improving. Since incurring significant losses in 2018, STX Heavy Industries has been operating at a loss except for 2020. However, since 2022, STX Heavy Industries has achieved profitability for three consecutive quarters. At the end of the third quarter of last year, the company's engine equipment orders increased by 16% year-on-year. In November last year, STX Heavy Industries also signed a contract with a Chinese shipbuilding company for the supply of marine engines worth 13.9 billion KRW (approximately $10 million). Simultaneously, STX Heavy Industries is currently discussing and researching the construction of facilities for the production of newly developed eco-friendly engines.

Further expanding marine engine production capacity and expanding market share in China and other overseas markets.

Industry experts point out that STX Heavy Industries has strong competitiveness in marine diesel engines, DF dual-fuel engines, LNG engines, and LPG engines. Korea Shipbuilding & Offshore Engineering's acquisition of STX Heavy Industries aims to combine the engine technology of Hyundai Heavy Industries Engine & Machinery Division (Hyundai Heavy Industries Engine Company, HHI-EMD) with STX Heavy Industries' technology, enriching the product portfolio of small and medium-sized engines and providing customers with a wider range of choices.

Furthermore, Korea Shipbuilding & Offshore Engineering's successful acquisition of STX Heavy Industries will create synergy between its shipbuilding subsidiaries, Hyundai Heavy Industries, Hyundai Mipo Dockyard, and Hyundai Samho Heavy Industries, and its engine business.

        According to International Shipbuilding Network, Korea Shipbuilding & Offshore Engineering's Hyundai Heavy Industries Group Engine & Machinery Division (HHI-EMD) is the world's largest manufacturer of marine engines. HHI-EMD mainly produces large and medium-sized marine engines and is the world's leading supplier of marine main engines in terms of delivery volume and total power. Its sales account for 7% of Hyundai Heavy Industries' total sales, second only to the shipbuilding and offshore engineering division, which accounts for 77%. In recent years, thanks to the significant increase in orders for eco-friendly vessels, the further development of the trend towards larger merchant ships, and the growth in order size, HHI-EMD has seen a surge in orders, particularly for dual-fuel engines, which command high prices, resulting in a significant improvement in the company's profitability.

Korea Shipbuilding & Offshore Engineering stated that the acquisition of STX Heavy Industries is intended to further expand its marine engine production capacity. A company representative said: "This is a strategic move to effectively address the growing demand for marine engines. Following the successful acquisition, combining Hyundai Heavy Industries' engine technology with STX Heavy Industries' technology will not only promote the diversification of small and medium-sized engine products but will also create synergy with HD Hyundai Group's shipbuilding business, further enhancing overall competitiveness."

After signing the formal contract to acquire STX Heavy Industries, HD Korea Shipbuilding & Offshore Engineering expressed its expectation that the acquisition will expand the production capacity of large two-stroke engines, strengthen the competitiveness of key components, and leverage synergy in the marine engine market through measures such as expanding exports through marketing collaboration.

After the acquisition, HD Korea Shipbuilding & Offshore Engineering will support STX Heavy Industries' independent management system and eco-friendly engine technology, promote the specialization of its dual-fuel engine, diesel engine, and other product lines, improve production efficiency, and maximize production capacity. While ensuring the competitiveness of STX Heavy Industries' turbochargers and increasing the domestic production rate of key components, HD Korea Shipbuilding & Offshore Engineering will help STX Heavy Industries strengthen its overseas marketing and expand its market share in China and other overseas markets.

A representative from HD Korea Shipbuilding & Offshore Engineering stated: "STX Heavy Industries will combine HD Hyundai Heavy Industries' engine technology to meet the growing demand for eco-friendly engines and create new growth opportunities through synergy with the group's shipbuilding business."