Shares of Hanwha Ocean fell more than 23% on Tuesday morning after Canada chose a German bid to replace its aging submarine fleet, dealing a major blow to the South Korean shipbuilder's ambitions in the NATO market. The benchmark Kospi index was down about 6% mid-morning, dragged by Samsung Electronics Co. as well.
Canada selects Thyssenkrupp for submarine project
Prime Minister Mark Carney announced on Monday that Thyssenkrupp Marine Systems is the preferred supplier to build as many as 12 submarines for Canada. The announcement was made at a naval base in Halifax, where Carney stopped en route to the NATO summit in Ankara, Turkey.
The decision is a major disappointment for Hanwha, which conducted an extensive advertising campaign in Canada and received solid support from South Korean President Lee Jae-myung's administration. Seoul has been pushing to expand its presence as a global arms exporter, and securing a foothold in the NATO market would have been a significant win for its shipbuilding industry.
Market reaction and partner impact
HD Hyundai Heavy Industries, Hanwha Ocean's partner on the bid, also saw its share price briefly slump 10% in early trading. The broader market decline was exacerbated by profit-taking after Samsung Electronics Co. reported earnings.
“We could not overcome the barrier of the NATO alliance despite our unwavering efforts to secure the contract, supported by the government’s full backing, the exceptional performance of our submarines, and the Navy’s proven record of successful submarine operations,” Hanwha Ocean said in a statement. The company said it would review the bidding process and ensure it can find a path forward for South Korea’s maritime defence industry.
South Korea's defense export ambitions
President Lee looked to put a positive spin on the outcome before departing Seoul to join the NATO summit. “Although we did not achieve the expected results in the Canadian submarine project, I believe we have once again clearly demonstrated our potential to the international community,” Lee said in a Facebook post.
Despite the setback, Lee is expected to focus on expanding defence industry partnerships with NATO countries. South Korea has been pushing to become the world’s fourth largest weapons exporter after gaining a reputation for speed and reliability in recent years. According to Lee aide Wi Sung-lac, Lee’s Turkey visit will mark “the beginning of a full-scale effort to promote defence industry cooperation with NATO allies which constitute the world’s largest defence market, accounting for 55% of global defence spending.”
