The proposed merger between Korea Shipbuilding & Offshore Engineering (KSOE) and Daewoo Shipbuilding & Marine Engineering (DSME) has been cleared by the competition watchdog.

The Competition and Consumer Commission of Singapore said on Tuesday that the transaction would not lead to a substantial lessening of competition.

As the two South Korean shipbuilders overlap in supplying commercial vessels, the commission focused on the largest classes within each of the four vessel types.

It found that the barriers to entry and expansion are generally high in the relevant markets, given the significant capital outlay and resources required.

Although the shipbuilders' customers are large shipping companies that buy commercial vessels from multiple suppliers, there is insufficient evidence that they have buyer power to constrain the merged entity from exercising its market power.

The two parties are also close competitors in the relevant markets. However, there would be viable alternative suppliers even after the proposed merger, the commission found. Its finding is supported by market feedback and an assessment of the closeness of rivalry between shipbuilders.

These alternative suppliers have sufficient excess capacities to satisfy a significant portion of any demand that switches away from the merged entity if it raises prices.

KSOE and DSME's historical bidding data also suggests that there are other close competitors that constrain their bid prices, the commission added.

KSOE's Singapore branch operates as a sales office. The company produces commercial vessels, including oil tankers, container ships, liquefied natural gas and liquefied petroleum gas carriers.

DSME produces commercial vessels and offshore facilities for the oil and gas sector. Its Singapore office focuses on marketing.

The commission conducted two public consultations and contacted 157 stakeholders, including competitors and customers. It also engaged government agencies.

THE BUSINESS TIMES