Giant cranes of Hyundai Heavy Industries are seen in Ulsan, South Korea, May 29, 2018. REUTERS / KIM HONG-JI
Giant cranes of Hyundai Heavy Industries are seen in Ulsan, South Korea, May 29, 2018. REUTERS / KIM HONG-JI

Seoul — South Korea’s Hyundai Heavy Industries, the world's biggest ship building group, announced a share swap deal on Thursday to take over second-ranked Daewoo, to create an industry heavyweight controlling over 20% of the global market.

The move comes as the worldwide shipbuilding sector recovers from a global economic downturn that led to massive losses, widespread job cuts and, in 2017, the $2.6bn bailout of Daewoo Shipbuilding & Marine Engineering.

State-funded Korea Development Bank (KDB) owns 55.7% of Daewoo, and has said it intends to sell the stake and consolidate the country's three biggest ship builders — which includes Samsung Heavy Industries — into two.

The shipbuilding industry accounts for 7% of both exports and employment in Asia's fourth-biggest economy.

The combination of two of the giant ship builders would ease competition and excess capacity, which have depressed ship prices, KDB chair Lee Dong-gull said at a news conference.

The deal will "raise the fundamental competitiveness of Daewoo, at a time when the threat from latecomers in China and Singapore is growing", Lee said.

Daewoo will also receive liquidity support of 2.5-trillion won ($2.25bn) from KDB and Hyundai, Hyundai said in a stock exchange filing.

KDB also said it would approach Samsung Heavy to gauge any interest in taking over Daewoo.

A Samsung Heavy spokesperson said it has received a proposal from KDB and that it needs to review the matter.

Daewoo shares rose as much as 22% on Thursday, before ending up 2.5%. Those of Hyundai Heavy Industries Holdings Co Ltd and unit Hyundai Heavy Industries Co Ltd fell about 4% on concern about a high purchase price, analysts said.

Meanwhile, Samsung Heavy shares ended up 2.5%, as investor concerns of it bidding for Daewoo eased.

KDB's stake was worth 2.2-trillion won as of Thursday's closing stock price, a valuation analysts regard as high.

Hyundai Heavy's workers' union said it will delay a vote on last year's wage deal in protest of a purchase it says could threaten job security. It said it would be "angered" if the ship builder ploughed money into buying another big firm having released workers after reporting losses and shrinking orders.

KDB's Lee ruled out any job cuts after the combination.

Hyundai's holding company is set to raise funds for acquisitions through the sale of part of its stake in refiner Hyundai Oilbank Co to Saudi Aramco for up to 1.8-trillion won.