HD Hyundai Heavy Industries Co. said on Wednesday that it will merge with HD Hyundai Mipo Co., marking its first step to tap into the Make America Shipbuilding Great Again (MASGA) initiative.
The merger is aimed at transforming Mipo’s docks into a dedicated base for military vessel production, leveraging HD Hyundai Heavy’s warship construction capabilities to accelerate entry into the US naval vessel market.
With four docks smaller than those for HD Hyundai Heavy, Mipo builds mid-sized container ships larger than US Aegis destroyers, as well as oil tankers, making it well-suited for conversion into a defense shipyard.
The merge announcement comes after South Korean President Lee Jae Myung reaffirmed Seoul’s commitment to the MASGA project, a centerpirce of the South Korea-US summit on Monday.
The MASGA initiative will provide a new momentum to Mipo as it has been grappling with intensifying competition from Chinese rivals due to the overlap in product lines, particularly in mid-sized container ships and tankers.
South Korea is currently not allowed to construct ships for the US Navy under the Byrnes-Tollefson Amendment that bans naval vessels from being built abroad. But exceptions can be granted by the President in cases of national security or technical necessity.
Industry insiders expect Seoul would resolve the issue in negotiations with Washington as the two countries seeks to strengthen defense cooperation.
“As the US expands its Strategic Sealift fleet, merchant ships deployed for wartime transport, HD Hyundai Mipo can play a significant role,” said a HD Hyundai Heavy official.
Under legislation introduced in Congress, the US plans to expand the fleet from about 60 ships to 250 within the next decade.
Mipo will allocate two of its docks to naval vessels and the remaining two to strategic sealift ships once it completes orders for medium-size container ships and tankers already in hand.
“Leveraging the technologies and network of HD Hyundai Heavy Industries, which has built the largest number of warships in the country, we’ll construct warships at HD Hyundai Mipo’s docks,” said a HD Hyundai Heavy official.
HD Hyundai Heavy has agreed to set up a multibillion-dollar fund for investment in US maritime projects in collaboration with state-run Korea Development Bank and US private equity group Cerberus Capital Management.
That is part of the $150 billion shipbuilding fund Seoul has pledged to create under its tariff deal with Washington.
HD Hyundai Heavy is also pursuing the acquisition of a US shipyard, following in the footsteps of domestic rival Hanwha Ocean Co.
South Korea’s largest shipbuilder is the only shipbuilder in the country with a license to construct warships.
But it faces limited capacity for warship construction due to a substantial order backlog, driven by the global shipbuilding supercycle.
Following the merger, HD Hyundai Heavy aims to boost revenue from defense industry to 10 trillion won ($7.2 billion) by 2035 from the current 1 trillion won.
In line with the MAGA project, Hanwha Group on Wednesday unveiled a plan to invest $5 billion in its US shipyard — Hanwha Philly Shipyard — far beyond earlier plans.
The investment, the group’s biggest spending for a single facility, reflects Hanwha’s ambition to establish a foothold in the US warship industry.
“South Korea’s shipbuilding industry is embarking on a new challenge to strengthen US maritime security and contribute to the revival of the US shipbuilding,” South Korea’s Lee said in a speech during his visit to Hanwha Philly Shipyard on Tuesday.
“Let’s create a win-win outcome, where the shipbuilding industries of both South Korea and the United States make a leap together.”
The merged entity between HD Hyundai Heavy and Mipo is set to launch in December. HD Hyundai Mipo shareholders will receive 0.4059146 of a HD Hyundai Heavy share for each share.
By Woo-Sub Kim, Hyung-Kyu Kim and Si-Ook Ahn
duter@hankyung.com
Yeonhee Kim edited this article.
