HD Hyundai bans access to court rulings in violation of the Military Secret Protection Act
HD Hyundai bans access to court rulings in violation of the Military Secret Protection Act
  • Kevin Lee 기자
  • 승인 2023.04.18 13:38
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HD Hyundai to delay Hanwha acquisition in order to disrupt order winnings

According to industry sources, HD Hyundai has banned third parties from reading rulings related to its employees convicted of violating the Military Secret Protection Act, preventing related authorities, including the Defense Acquisition Program Administration, from taking measures such as illegal sanctions or cancellation of contracts.

Nine members of HD Hyundai's special ship business division were indicted on charges of violating the Military Secret Protection Act and all of them were suspended from imprisonment by the Ulsan District Court (first trial) in November last year. Eight of them gave up their appeals and were sentenced, while the other one is in the process of appeal.

HD Hyundai Ulsan Shipyard
HD Hyundai Ulsan Shipyard

Employees were sent to the Prosecution in February 2020, but in August of that year, HD Hyundai won the basic design of the KDDX project worth a total of 7 trillion won. Daewoo Shipbuilding, which fell by 0.056 points, challenged the agency and filed an injunction with the court.

The claim that Hyundai Heavy Industries won the project by stealing the design drawn up by Daewoo Shipbuilding was rejected by the court which said that it was unclear whether HD Hyundai used illegally acquired data to bid for the KDDX basic design.

Regarding the first trial's conviction of HD Hyundai employees, the agency said, "We asked the Ulsan District Court to review follow-up measures, but we received a reply that the ruling could not be provided due to the ruling party's request for restrictions on disclosure."

It is impossible to review sanctions such as restrictions on participation in bidding because the ruling cannot be seen. "We will secure a ruling in the future and take action in accordance with laws and regulations if the connection between the KDDX business and HD Hyundai is confirmed," the agency said.

HD Hyundai to delay Hanwha acquisition to disrupt order winnings

HD Hyundai raised four objections as soon as Hanwha reported a business combination to the Fair Trade Commission on December 19 last year (December 29, this year February 6 , March 10, and March 24).

On the other hand, it is analyzed that this is due to competition among shipbuilders for orders ahead of large-scale shipbuilding orders between this year and next year. HD Hyundai claims that if Hanwha Group takes over Daewoo Shipbuilding, its defense affiliates may offer them relatively high prices and provide technical information in a discriminatory manner.

However, defense officials pointed out that they cannot raise such a problem if they know the specificity of defense. Since ship parts such as propulsion systems, combat systems, and sonar systems are supplied to the Defense Acquisition Program Administration (directly delivered to the agency), there is no discrimination in price or terms of transaction.

In the case of contracts that deal directly with private companies, price discrimination is impossible to actually take place because the agency recognizes it when evaluating bidding if parts companies provide differentiated estimates to private companies.

The Korea Development Bank, a party to the sale of Daewoo Shipbuilding, also issued an unusual statement, stressing that "the possibility of a decline suggested by competitors is extremely slim due to the structural nature of the defense market, where technology and prices are strongly managed as the government's final consumer."

The industry believes that HD Hyundai is intentionally delaying the review of corporate defects in order to gain an advantageous position in the bidding war with Daewoo Shipbuilding.

If Daewoo Shipbuilding is acquired by Hanwha and is on track for normalization, it could become a strong competitor in the bidding race. In particular, as orders for large-scale shipbuilding projects are concentrated between this year and next year, HD Hyundai is using its strategy to delay the acquisition as much as possible as the delay in the acquisition of Hanwha by Daewoo Shipbuilding is more favorable.

HD Hyundai makes Hanwha miss golden time to acquire Daewoo Shipbuilding

Does it make you less competitive?

Hanwha initially plans to make large-scale investments in the special ship sector while seeking to acquire Daewoo Shipbuilding. After completing the acquisition process within the first quarter of this year, special ship construction facilities will be modernized, including the introduction of large cranes, dock repair, and the expansion of shops for various design works.

Daewoo Shipbuilding was a strong player in the floating ship market until the 2010s, including the construction of various large destroyers. However, due to a series of failed sales and prolonged deterioration in management, there was no room for investment in the special line (defense) sector. Some of the investments were also centered on merchant ships. As a result, it is lagging behind HD Hyundai in the competition for orders.

However, it is difficult to invest in Daewoo Shipbuilding and start the business in earnest due to the problem of HD Hyundai's own orders. The red light is on before the order for Chungnam-class frigate No. 5 and No. 6 worth 800 billion won, which will be ordered in May.

In addition, it is not guaranteed to win orders for the construction of the 3rd next-generation submarine (KSS-III Batch-II) worth 1 trillion won in the second half of the year and the detailed design of the next Korean destroyer (KDDX).

The delay in Hanwha's acquisition of Daewoo Shipbuilding will delay the normalization of Daewoo Shipbuilding, and this is why HD Hyundai is delaying the acquisition process by raising the issue of "trap monopoly" to the FTC.

"The shipbuilding project is ordered separately by the Navy and Defense Acquisition Program Administration's Integrated Project Management Team (IPT), so there is not much of a competition restriction compared to other industries," said a Navy reserve expert.

Since competitors exist in each field and are introduced under government control after cost verification, it is difficult to share technical information or discount prices among affiliates in the group.

An official from the defense industry said, "The original technology for the navy vessel itself or vessel-mounted equipment is owned by the state, and the data necessary for bidding is provided to all bidding participants through bidding announcements or briefing sessions."

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