Amid the growing political and economic row between South Korea and Japan, Hyundai Heavy Industries faces fresh concerns over its decision to acquire Daewoo Shipbuilding & Marine Engineering as it needs to get approval from Japan’s regulators amid a widespread anti-Korean sentiment.

After submitting a request for formal approval from Korea’s Fair Trade Commission early this month, HHI is slated to make similar requests to antitrust watchdogs in Japan, China, Kazakhstan and the European Union.

Getting approval from the countries is necessary as the possible merger of the two major shipbuilders may reshape the global shipbuilding landscape with their dominant market position. If any country disapproves of the request, the merger is likely to founder. 

HHI’s biggest concern used to be the possible opposition from EU regulators. European ship owners have reportedly pressed their governments to oppose the merger on fears that it could have an influence on the domestic market, with many dominant shipbuilders in Denmark, Greece and Germany.

Recently, however, new concerns have emerged as Japan has started tightening curbs on exports of hi-tech materials used for semiconducters and dispalys amid a growing row over forced wartime labor. Industry watchers say Japan’s antitrust watchdog may disrupt the merger by intentionally delaying the approval.

In November last year, the Japanese government filed a complaint with the World Trade Organization, alleging that Korea is giving illegal subsidies to shipbuilders. Last month, Japan’s Ministry of Economy, Trade and Industry again denounced Korea for financial support to the industry in its antitrust trade report.

“Japan’s rejection of the merger is possible. It has significant influence in the global shipbuilding industry. The current thorny situation is also something HHI could not have predicted as it is a political decision by Shinzo Abe ahead of Japan’s upper house elections,” said Park Young-ho, a professor at Changwon National University’s shipbuilding and marine college.

Some industry watchers, however, say Japan may find it challenging to prove that the potential merger will significantly disrupt its market. This is because Korean shipbuilders have only a small portion of orders from Japan. According to research firm Clarkson, Korean shipbuilders won 30 contracts out of 385 orders placed by Japanese companies, including Nippon Yusen and Mitsui OSK Lines, last year.

HHI said it would faithfully respond to the evaluation timeline and process to meet standards of each antitrust regulator, without further commenting on the issue.

In March, HHI signed a formal deal, worth an estimated 2 trillion won ($1.7 billion), with the state-run Korea Development Bank to buy its smaller rival DSME. KDB is the largest shareholder, with a controlling 55.7 percent stake. 

By Shin Ji-hye (shinjh@heraldcorp.com)