South Korea's Hyundai Heavy Industries Group is interested in buying a stake in cross-town rival Daewoo Shipbuilding and Marine Engineering, a Hyundai official said, sending shares of Daewoo rallying as much as 22 percent on Thursday.
"Hyundai Heavy held talks to buy the Daewoo stake," the Hyundai official said, without providing further details such as the size of the stake or purchase price.
Daewoo Shipbuilding received a $2.6 billion state-backed bailout in 2017 after historically low oil prices caused delays in payments for complex offshore facilities.
State-funded Korea Development Bank (KDB) now owns 55.7 percent of Daewoo, and has said it aims to sell its stake and consolidate the country's three biggest shipbuilders — which includes Samsung Heavy Industries — into two.
Consolidation of the shipbuilding industry, which is recovering from the last global economic downturn, would help ease competition which has cut into profits, analysts said.
KDB's stake was worth 2.16 trillion won ($1.94 billion) as of Wednesday's closing stock price, a valuation analysts regard as high.
Hyundai Heavy has submitted a letter of intent to KDB to buy a stake in Daewoo, online news provider Yonhap Infomax reported on Thursday, citing the government.
Daewoo and KDB declined to comment when contacted by Reuters.
Hyundai Heavy's union said the potential acquisition could threaten job security, and will delay a vote on this year's wage deal in protest. It said it would be "angered" by the shipbuilder plowing money into buying another big firm having released workers after reporting losses and shrinking orders.
Hyundai Heavy Industries Holdings plans to raise funds for possible acquisitions through the sale of part of its stake in refiner Hyundai Oilbank Co Ltd to Saudi Aramco for as much as 1.8 trillion won.
Hyundai Heavy is the world's biggest shipbuilder, followed by Daewoo. It was not clear whether Hyundai Heavy or the group holding would participate in any bid for a Daewoo stake.