Kawasaki Heavy, Mitsui Engineering Mull Integration

Tokyo, April 22 (Jiji Press)--Major Japanese shipbuilding and heavy machinery companies Kawasaki Heavy Industries Ltd. <7012> and Mitsui Engineering & Shipbuilding Co. <7003> are considering a business integration to ride out a tough business environment, informed sources said Monday. If realized, the integration will create a bigger rival for Japan's industry leader Mitsubishi Heavy Industries Ltd. <7011>. Combined annual sales of Kawasaki Heavy, now the second-largest Japanese shipbuilder and heavy machinery maker, and Mitsui Engineering, the fifth industry player, come to some 2 trillion yen, second only to Mitsubishi Heavy's 3 trillion yen. By strengthening their management bases, Kawasaki Heavy and Mitsui Engineering apparently aim to shore up their shipbuilding operations amid a global downturn and boost the oil and other plant operations, which have held steady, the sources said. Still, there are cautious opinions within the two companies about the possible integration, according to the sources. The shipbuilding industry is facing deterioration in the global supply-demand balance after massive capital expenditures by Chinese and South Korean companies. In addition, demand plunged after the collapse of U.S. investment bank Lehman Brothers in September 2008, while the yen's surge against other major currencies squeezed Japanese shipbuilders. Against this background, Kawasaki Heavy has invested in Chinese and Brazilian shipyards in a bid to lower production costs through overseas expansions. Mitsui Engineering is developing ships powered by liquefied natural gas, featuring low carbon dioxide emissions. The company is also focusing on floating oil and gas production facilities as part of an effort to better compete with overseas rivals by offering value-added products. Despite some signs of improvement thanks to the yen's recent weakening, the business conditions for Japanese shipbuilders will likely remain difficult for some time, as it is expected to be a few years before order receipts recover and construction starts. Mitsui Engineering has estimated a group net loss of 8.3 billion yen for the business year that ended in March, due to 23,673 million yen in impairment loss on production facilities stemming from expected falls in orders. END