FCT Fincantieri SpA

Italian shipbuilding giant Fincantieri SpA and Dutch counterpart Damen Shipyards Group are in the running to buy STX France, which has been put on the block by Korean debt-ridden parent STX Offshore & Shipbuilding Co., a person with direct knowledge of the matter said Friday.

"It's down to Fincantieri and Damen," the person said. "If there is a deal, it could be announced as early as this month."

STX France, which specializes in building cruise ships, is the only profitable unit of STX, with a full order book for the next seven years.

STX, which filed for receivership in May, is Korea's fourth-largest shipyard and a unit of conglomerate STX Corp. STX is active in shipping, construction and energy around the world.

The sale of the French yard is a key part of a restructuring plan by STX, which also includes cutting by 35% its 2,090 staff in Korea by the end of September. The company's creditors will decide in October whether to accept the plan. If it is rejected, the company will be liquidated.

"STX France is a good asset, but there is still no certainty that an agreement with the bidders will be reached," the person involved in the sale process said.

Fincantieri declined to comment and Damen didn't immediately return requests for comment.

Korean shipyards, including the world's three largest—Hyundai Heavy Industries Co., Daewoo Shipbuilding & Marine Engineering Co. and Samsung Heavy Industries Co.—are restructuring led by creditor banks that have struggled to rehabilitate the embattled shipbuilders through the sale of noncore assets.

Profits at Korean shipbuilders began sliding when the 2008 global economic crisis damped orders from shipping companies, and lower-cost Chinese rivals made market inroads.

A glut of ships in the water and not enough cargo to fill them over the past three years has led to record-low freight rates, prompting owners to further cut or push back new ship orders.

The Korean yards ventured into offshore oil rigs starting around 2010 to avoid direct competition with shipbuilding rivals in China, where inexpensive labor could churn out low-profit vessels at cheaper rates.

But a sharp decline in crude prices has prompted international oil companies to reduce their capital expenditure, resulting in fewer offshore and other projects for shipbuilders.

STX Offshore creditors have injected billions of dollars to bail it out, but it still ran a 314 billion won ($265 million) operating loss last year, following a 1.5 trillion won loss in 2014. The company owes financial institutions nearly 6 trillion won.

Write to Costas Paris at costas.paris@wsj.com

(END) Dow Jones Newswires

September 09, 2016 08:55 ET (12:55 GMT)

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