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JFE
Holdings Inc. and IHI Corp. will start talks to combine
shipbuilding operations to create
Japan’s
biggest shipyard, challenging South Korean and Chinese
rivals.
The
Tokyo-based companies will discuss details, including
the merger ratio at a later date, according to a joint
statement to the city’s stock exchange Tuesday. IHI said
its board will consider combining wholly owned IHI
Marine United Inc. unit with JFE’s 85 percent-controlled
Universal Shipbuilding Corp. subsidiary.
The
merger would create the world’s sixth-largest
shipbuilder with annual sales of ¥345 billion ($3.4
billion) behind South Korean rivals including Hyundai
Heavy Industries Co. South Korea overtook Japan as the
world’s largest shipbuilding nation in 2000, while
Chinese yards surpassed Japan based on new orders in
2006.
“Things
will be tough in the longer term,” said Yoku Ihara, head
of equity research at Tokyo-based Retela Crea Securities
Co. “The two companies need to expand the size of their
shipbuilding operations as neither of their businesses
alone is big enough.”
IHI,
Japan’s third-biggest maker of heavy machinery, would be
able to secure steel supplies from JFE, the world’s No.
3 steelmaker, as higher prices for the alloy raise
costs.
“IHI
expects expanded steel supplies will help save costs,”
IHI spokesman Toyoshi Kodama said Tuesday by telephone.
“We also
predict the merger would benefit us in terms of
resource-sharing and development of new ships.”
Shares
decline
IHI
shares, which fell 57 percent in the past 12 months,
declined 1.5 percent to ¥203 as of
2:15 p.m. on the Tokyo Stock Exchange. JFE slipped 3.3 percent to ¥4,380.
JFE and
IHI will set up a committee with their shipbuilding
units to discuss details on how to combine their
operations, the joint statement said. No timing was
given in the statement.
“International competition is forecast to further
intensify due to aggressive expansion of orders and
facilities from South Korean and Chinese shipbuilders,”
JFE and IHI said. “The outlook of the shipbuilding
industry is far from optimistic.”
IHI,
maker of equipment ranging from jet engines, nuclear
components to car turbochargers, is looking to save
costs after unexpected project expenses at its
engineering and plant unit forced the company to reverse
last fiscal year’s profit to a loss.
Saving
costs
THE
company estimates fiscal 2007 sales from IHI Marine to
reach ¥160 billion, about 12 percent of total revenue.
IHI is also selling the money-losing cement-plant
business and is cutting back boiler projects to revive
earnings.
JFE’s
Universal Shipbuilding unit expects a profit of ¥1.5
billion ($15 million) in the year ended March 31,
compared with a loss a year earlier. Sales probably
increased 16 percent to ¥185 billion.
IHI was
placed on “alert” and will need to submit a report every
year on its management system, the Tokyo Stock Exchange
said February 8 after deciding against removing the
company from the bourse. The company will be delisted if
it fails to show improvement within three years.
Hyundai
Heavy, the world’s largest shipyard, is adding two new
dry docks in South Korea. Samsung Heavy Industries Co.
and Daewoo Shipbuilding & Marine Engineering Co., the
second-biggest and third-largest shipbuilders,
respectively, are also enlarging capacity by adding
floating docks and extending the length of existing
ones.
Capacity
increase
“EXPANSION projects will increase shipbuilding capacity
by almost 20 percent,” said Cho In Karp, an analyst at
Good Morning Shinhan Securities Co. in Seoul. “That
means Hyundai Heavy will be able to deliver about 20
additional vessels a year and Daewoo Shipbuilding as
many as eight more.”
Hanjin
Heavy Industries & Construction Co. and STX Shipbuilding
Co. have expanded capacity overseas by setting up new
yards in Subic in the Philippines and Dalian in China.
China
aims to double production by 2015 to overtake
South Korea
as the world’s biggest shipbuilding nation. (Bloomberg) |
