HD Hyundai deemed top beneficiary of US bill to build warships abroad

By Park Jae-hyuk

HD Hyundai Heavy Industries (HHI) is enjoying a rosy outlook upon winning orders to build U.S. naval vessels at its shipyards in Korea, as a new bill proposed in the United States is designed to allow the U.S. Navy to procure warships built in allied nations.

This is seen as an opportunity for HHI to challenge its domestic rival Hanwha Ocean, which gained the upper hand after acquiring Philly Shipyard in Philadelphia last year to supply naval and commercial vessels.

Such an optimistic outlook came as two U.S. Republican senators proposed bills on Feb. 5 to ease the Byrnes-Tollefson Amendment, which prohibits the construction of U.S. naval vessels and the manufacturing of major components on those ships in foreign shipyards.

Their proposals are intended to allow the U.S. Navy and Coast Guard to procure vessels built in shipyards of NATO member nations or Indo-Pacific countries that signed mutual defense agreements with the United States if the cost is cheaper in such shipyards and those shipyards are not affiliated with China.

"Both bills are about leveraging our diplomatic relationships and the comparative advantages of our allies to ensure America remains at the forefront of maritime security," said Sen. Mike Lee, who proposed the bills with Sen. John Curtis.

Curtis said that the Ensuring Naval Readiness Act and the Ensuring Coast Guard Readiness Act take common-sense measures to strengthen the U.S. Navy and Coast Guard while keeping costs down and reinforcing alliances with trusted partners.

Although they did not mention specific names of the allied countries, Korea and Japan are seen as the only two nations that can build U.S. naval vessels at lower costs. Last year, the proportions of new global shipbuilding orders placed with Korea and Japan were 16.7 percent and 4.9 percent, respectively, while China swept over 70 percent of the orders.

Welcoming the proposed bills, HD HHI emphasized the size of its shipyard, which is the largest among U.S. allies.

"We are capable of building Aegis destroyers that can satisfy the U.S. Navy's demand in terms of performance, cost and period of construction," an HD HHI official said.

Hanwha Ocean welcomed the bills as well, mentioning its track record of receiving the U.S. Navy's orders to maintain, repair and overhaul its vessels. However, the new bills also caused doubts about the necessity of its Philly Shipyard, which needs a significant amount of money for normalization and higher wages to satisfy U.S. shipyard workers.

Given U.S. President Donald Trump's push to overhaul the country's navy in collaboration with allies, industry officials view the likelihood of the bill's passage as greater than before.

Investors bet that both shipbuilders will benefit from the newly proposed U.S. bills.

After Korean investors learned about the proposals on Wednesday, the stock prices of both HD HHI and Hanwha Ocean hit the 52-week high during the intraday trading session. HD HHI closed at 353,000 won ($243), up 15.36 percent from the previous session, while Hanwha Ocean closed at 72,900 won, a 15.17 percent rise from a day earlier.