As part of the Korea-US shipbuilding cooperation, South Korea plans to undertake maintenance, repair, and overhaul (MRO) services for US Navy ships by establishing dedicated shipyards. The three candidate shipyards are HJ Shipbuilding and Construction, K Shipbuilding, and HD Hyundai Heavy Industries Gunsan Shipyard.
According to South Korean media reports, South Korea is formulating an action plan for a shipbuilding cooperation project proposed to the US called “Make American Shipbuilding Great Again” (MASGA). The main content of the MASGA project includes designating shipyards specifically for US Navy ship MRO operations and establishing a government-funded fund to promote shipbuilding cooperation.
In light of this, the South Korean government is considering acquiring a medium-sized shipyard to take over the US Navy’s MRO business. The plan is to begin with MRO services, which can be immediately implemented, and then expand into US shipbuilding once relevant US laws are revised.
South Korean media pointed out that several months before the finalization of the South Korea-US tariff agreement, Ministry of Trade, Industry and Energy of South Korea (MOTIE) had already begun considering using the funds generated from using the shipbuilding industry as a key bargaining chip in negotiations to acquire K Shipbuilding. The plan was to use government funds to acquire K Shipbuilding and then take over the US Navy’s MRO business. K Shipbuilding has a significant geographical advantage, being adjacent to a US Navy base.
K Shipbuilding’s largest shareholder, KH Investment Group, a South Korean private equity firm, and United Asset Management Company (hereinafter referred to as the “KHI-UAMCO Alliance”), a Korean distressed asset management company operated by major South Korean banks, have initiated the sale process for K Shipbuilding. The sale is being led by UAMCO, which exercises de facto management rights and holds a 30% stake in the government-backed companies (Korea Development Bank, Industrial Bank of Korea, and Export-import bank of korea).
If MRO business can continue to secure stable orders, the South Korean government is positive about transforming K Shipbuilding into an MRO base, noting that “MRO profit margins are lower than shipbuilding, but as long as the business continues, it is acceptable.”
Earlier news broke that the KHI-UAMCO consortium has selected Samil PwC as the lead manager for K Shipyard’s public sale. Samil PwC plans to complete seller due diligence by the end of August and issue an investment memorandum (IM) in September, aiming to select a preferred negotiating partner through a bidding process within the year. The sale is not open to foreign private equity investors and is intended to target Korean buyers.
The second candidate shipyard is HJ Heavy Industries. Since March of this year, HJ Heavy Industries has been working to sign a Master Ship Repair Agreement (MSRA) with the US Naval Supply Systems Command. In April, Commander Neil Coprofski of the US Navy in Korea visited HJ Heavy Industries’ Yeongdo Shipyard to inspect its MRO business preparations. In July, HJ Heavy Industries and 10 ship repair-related companies in Busan and South Gyeongsang Province jointly established a ship MRO industry cluster consulting organization.
It is reported that MSRA is an agreement signed between the US government and private shipyards, and is a prerequisite for shipyards to participate in US naval ship MRO services. Once the agreement is formally signed, HJ Heavy Industries will become the third South Korean shipbuilder to enter the US MRO market, following Hanwha Ocean and HD Hyundai Heavy Industries.
HJ Heavy Industries has confirmed that it is preparing to participate in the US Navy’s MRO business, but has no plans to sell the company at this time. The company stated, “There is zero possibility that Dongbu Group, the company’s largest shareholder, will sell its shares.”
In addition, HD Hyundai Heavy Industries’ Gunsan Shipyard is also under consideration by the South Korean government. Jeollabuk-do Province and Gunsan are promoting a plan to develop Gunsan Port into a U.S. Navy MRO complex, and during this period, discussions are underway on the possibility of using HD Hyundai Heavy Industries’ Gunsan Shipyard as an MRO base.
Since resuming operations at the end of 2022, HD Hyundai Heavy Industries’ Gunsan Shipyard has not yet acquired the capability to build entire ships, but has been constructing ship blocks for HD Hyundai Heavy Industries’ Ulsan Shipyard. However, HD Hyundai Heavy Industries officials stated, “We have not yet received any information from the government regarding the transformation of the Gunsan Shipyard into an MRO base.”
It is worth noting that the Korean shipbuilding industry is full of rumors about the sale of HD Hyundai Heavy Industries’ Gunsan Shipyard, but HD Hyundai Heavy Industries has strongly denied it, saying: “Our company has never considered selling the Gunsan Shipyard and has no reason to sell it.”
An official from Gunsan City also stated, “The Gunsan Shipyard is not merely a factory, but a core pillar supporting local employment and the industrial ecosystem. Unsubstantiated rumors will dampen investment confidence and deal a blow to the operations of cooperative enterprises.”
In addition to rumors of a sale, Gunsan Shipyard is also facing uncertainty due to the expiration of logistics subsidies at the end of the year. In response, HD Hyundai Heavy Industries emphasized, “Unverified rumors may cause unnecessary confusion in the regional economy. Regardless of whether logistics subsidies are provided, Gunsan Shipyard will continue to operate. We hope that all parties will focus on supporting substantive competitiveness improvement and sustainable growth rather than baseless rumors.”
The US Navy’s ship MRO business is reportedly worth approximately $20 billion annually. South Korean shipbuilders, driven by this market outlook, are fully committed to participating in the US Navy’s MRO business by 2024, with Hanwha Marine & Offshore securing the first order. As of July this year, Hanwha Ocean has secured three US Navy MRO orders.
In early August, HD Hyundai Heavy Industries announced that it had won a US Navy MRO contract to provide regular maintenance services for the 41,000-ton logistics support ship Alan Shepard, which belongs to the US Navy’s 7th Fleet. This is the first time HD Hyundai Heavy Industries has won a US MRO project, and it is also the first time a South Korean shipbuilder has won a US MRO project since the conclusion of the South Korea-US tariff negotiations.