Market AnalysisJul 10, 20262 Min

Canada chooses Germany’s TKMS to build its submarine fleet; South Korea’s Hanwha Ocean drops 23% on losing bid

Canada has announced the largest military procurement deal in its history.

Prime Minister Mark Carney has chosen Germany’s Thyssenkrupp Marine Systems (TKMS), the world’s largest non-nuclear submarine manufacturer, to build the country’s submarine fleet.

Germany’s TKMS was competing with South Korea’s Hanwha Ocean for the multi-billion-dollar 12-vessel contract.

Shares of Hanwha Ocean plunged sharply on Tuesday, by as much as 23%, soon after investors realised that the company had lost its bid for Canada’s submarine programme.

As of 11:58 am local time on Tuesday, Hanwha Ocean shares were trading at 89,000 won on the Kospi, down 23.34%, from the previous session's closing price of 116,100 won.

Meanwhile, TKMS shares listed on the Frankfurt Stock Exchange rallied as much as 6% in pre-market trade to near the €100 mark on Tuesday. The stock has already risen 27% in the past five trading sessions in anticipation of the company winning the deal.

Deal details

Interestingly, the government has not released an estimated cost for the deal.

In a statement released on Monday, Canada said that it will conclude the contract no later than the end of 2027, with the first four submarines to be delivered ahead of schedule, in 2034.

“In the event that negotiations with the preferred supplier are unsuccessful, Canada may designate Hanwha Ocean as the preferred supplier and enter into negotiations,” the statement said.

The deal is a part of the Canadian Patrol Submarine Project (CPSP) to renew and strengthen the Royal Canadian Navy’s underwater capabilities and ensure a sustained presence in the Atlantic, Pacific and Arctic oceans.

The new modern submarines will replace the aging Victoria-class fleet, the government said. Canada’s current fleet of four Victoria class submarines are barely in operation.

“With the longest coastline in the world, Canada’s ability to deploy underwater surveillance capability is critical. Our security and sovereignty depend on them,” the statement read.

Strategic benefit

German-Norwegian consortium TKMS had pitched its submarines to Canada as strengthening North Atlantic Treaty Organization (NATO), noting it has supplied much of the alliance’s conventional submarine fleet. This could have been a crucial factor in Canada’s decision.

By choosing Germany over South Korea, Carney seems to have taken a step to strengthen economic and security ties with Europe as it faces trade tensions with the US.

“Together with our German and Norwegian Allies, we will build at speed and scale to expand our strategic capabilities and create greater strategic autonomy. We will build this fleet to build Canada strong,” Carney said in the statement.