Shares of South Korean shipbuilder Hanwha Ocean Co. plunged nearly 20 percent Tuesday morning after Canada selected Germany’s Thyssenkrupp Marine Systems GmbH (TKMS) as the preferred bidder for its next-generation submarine procurement program. The stock was trading at 93,400 won ($61.10) as of 9:04 a.m., down 19.55 percent from the previous session.
The sharp decline triggered a Volatility Interruption immediately after the market opened. Shares of HD Hyundai Heavy Industries Co., which had formed a consortium with Hanwha Ocean to compete for the contract, also fell 7.2 percent to 541,000 won.
Canadian Prime Minister Mark Carney announced overnight that TKMS was selected as the preferred bidder for Canada’s Next-Generation Patrol Submarine Project (CPSP). Carney, however, added that if negotiations with TKMS fail, Canada retains the right to begin negotiations with Hanwha Ocean, the next-ranked bidder.
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The project is valued at approximately 60 trillion won.
It covers the construction of 12 submarines and their maintenance, repair, and operation over a 30-year period.
A bid that came up short, with a door left open
Hanwha Ocean responded quickly after the announcement. The company said in a statement that it “will thoroughly analyze the lessons learned from this bidding process, develop concrete alternatives, and find ways to enable Korea’s maritime defense industry to make an even greater leap forward in the global market.”
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HD Hyundai Heavy Industries also issued a statement: “While it is regrettable that we were unable to secure the order, the experience of Korea competing as one team to win the contract will serve as a solid stepping stone for our country’s defense industry to make a significant leap forward.”
Analyst Kang Kyung-tae of Korea Investment & Securities Co. said the stock’s drop was expected. “A temporary shock to the share price is inevitable on the day the failed bid is confirmed, but the stock is likely to recover quickly, supported by expectations for second-quarter earnings at the end of July and anticipated investments in U.S. shipbuilding for the Make American Shipbuilding Great Again (MASGA) project,” Kang said.
