Samsung Heavy Industries' shipyard on Geoje Island in South Gyeongsang Province / Courtesy of Samsung Heavy Industries

Samsung Heavy Industries will sue Zvezda as the Russian shipbuilder asked the Korean shipbuilder to return $800 million worth of advances received and pay interest for arrears after unilaterally canceling their two contracts worth $4.3 billion, the Korean firm said Thursday.

Zvezda abruptly informed Samsung Heavy on Tuesday of the cancellation of their contracts for the Korean firm's supply of blocks and equipment for the Russian firm to build 10 icebreaking liquefied natural gas (LNG) carriers and seven icebreaking shuttle tankers.

They signed the deals in November 2020 and October 2021.

Following the start of Russia's invasion of Ukraine in February 2022, however, the governments of Korea and the United States started regulating exports to the invader.

As a result, Samsung Heavy stopped making the blocks and equipment, citing "force majeure."

Earlier this year, the U.S. government designated Zvezda as one of the "specially designated nationals and blocked persons" and blocked transactions with the Russian company.

After months of negotiation between Samsung Heavy and Zvezda about whether to maintain their contracts, the Russian firm claimed unilaterally that the Korean company breached their agreements.

"We regard the client's cancellation of contracts as illegitimate, so we will ask the Singapore International Arbitration Centre Court to judge the illegitimacy and the amount we should return," a Samsung Heavy official said. "We also plan to continue talks with the client."

Securities analysts expect Zvezda's request to have a limited impact on Samsung Heavy's business in the short run.

"This will not affect the company's construction of other products," Shinyoung Securities analyst Eom Kyung-ah said. "It generally takes a long time for the arbitration court to reach a conclusion, so in the short run, there will be no changes to its business and accounts."