2017-12-10 14:31
Stricken shipbuilder

The biggest container ship built by Samsung Heavy Industries for Mitsui O.S.K Lines / Courtesy of Samsung Heavy

Debt-laden Samsung Heavy seeks more capital from Samsung Electronics, Samsung Life

By Park Hyong-ki

Samsung Heavy Industries is seriously in need of capital to repay its debts and finance its operations next year.

Short of projects and cash, the shipbuilder has decided to call for help again from its major shareholders _ Samsung Electronics, Samsung Life Insurance and other Samsung affiliates.

This week, it filed a disclosure saying Samsung Heavy plans to raise capital worth up to 1.5 trillion won via new shares through its shareholders by May 2018.

The reason was “to improve its finances.”

The company did not hide its financial troubles due to fewer orders since last year.

This year, it is expected to post an operating loss of 490 billion won, and next year the loss will be 240 billion won.

Last year, it only achieved about 10 percent of its target orders, according to the company.

Also, its projects to build ships and offshore plants it secured this year will commence in 2019.

Until then, there will be less money coming in from its core operations.

As it finds itself at a critical point at which it will either have to go out of business or receive more capital, Samsung Heavy has once again opted for the latter.

And this time, it will most probably cost Samsung Heavy CEO Park Dae-young his job.

Already, rumors and speculations are floating around the market that Samsung Group will terminate Park’s contract at its shareholders’ meeting and appoint someone else to head the company next year.

Samsung Heavy’s stock price will without doubt suffer further as more shares issued would depreciate its value.

A number of brokerages have lowered their share price forecast of the shipbuilder. Its shares fell nearly 30 percent after the company announced its latest fundraising plan.

It is expected to fall below 8,500 won, many analysts predict.

“Given its debt and the banks’ tightening loan programs, the company is pre-emptively preparing to secure capital,” said Chung Dong-ik, an analyst at KB Securities.

Samsung Heavy has short-term debt of 1.7 trillion won, according to its third-quarter financial statements.

It does not have enough cash to pay back its debt due next year.

At the moment, it has a positive cash flow from operations as of the end of September this year.

But its cash flow from its investment activity has decreased. It has a negative cash flow from financing.

This means the company is trying to hoard cash as much as it can, while reducing its investments to pay down its debt.

CEO Park did hint last August to investors that Samsung Heavy will need to raise capital via new share issuances to stay afloat as banks refuse to extend loans amid an industry downturn.

This explains its negative cash flow from financing _ no money is coming in from the financial sector.

Samsung Electronics is the biggest shareholder with a 16.91 percent stake in the shipbuilder, followed by Samsung Life with a 3.24 percent stake. Other minority stakeholders include Samsung Electro-Mechanics and Samsung SDI.

Franklin Templeton is Samsung Heavy’s financial investor with a 5.13 percent stake.

It remains to be seen how much Samsung Electronics and Samsung Life will foot Samsung Heavy’s bill this time.

In November last year, the tech giant injected 181.1 billion won in the ship builder, and the insurance giant injected 34.7 billion won into Samsung Heavy as part of a 1.14 trillion won fundraising campaign.