Samsung Heavy set for massive financing plan

Ailing company to conduct major restructuring

Samsung Heavy Industries’ shareholders approved a proposal to reduce its capital base in an effort to dig itself out of financial crisis.

The 5-to-1 capital reduction was approved by 98 percent of shareholders. The move will cut the shipbuilder’s common and preferred shares from the current 5,000 won ($4.40) to 1,000 won.

The decision will simultaneously reduce the company’s capital base to 630 billion won from 3.15 trillion won, the company said.

SHI announced plans for a capital reduction in May in the hope of getting the company into better financial shape, as the shipbuilder has been suffering due to an accumulated deficit of over 2 trillion won.

After the capital reduction, SHI plans to hold another board meeting next month to discuss issuing new shares and raising the total from the current 800 million to 1.5 billion, in order to raise 1 trillion won, which will mark the first large-scale capital increase in stocks since 2018.

The capital reduction is set to take effect on July 26, while new shares are scheduled to be released on the local stock market on Aug. 10. SHI has suffered losses for 14 consecutive quarters, forcing the company into capital impairment.

In the first quarter of this year, the company’s total assets accounted for 3.33 trillion won, but its capital came out lower at 3.15 trillion won.

“The capital reduction and capital increase through new stocks should be able pre-emptively to resolve any difficulties and secure financial solvency in the future,” Jung Jin-Taek, its CEO, said, during the board meeting, Tuesday. “This urgent decision was made in order to maintain our business and not to fall behind the competition.”

SHI also reiterated that a capital increase through new stocks, coinciding with the capital reduction efforts, is not always a bad move, claiming that the capital reduction is being made to avoid capital impairment and that the capital increase will allow the company to secure funds to invest in diverse technologies for future growth.

The funds acquired are expected to be invested in next-generation eco-friendly vessel development

and in establishing a smart yard to enhance future competitiveness in the global shipbuilding industry.

“The general shareholders meeting received a high acceptance rate, passing the agenda, and so the future increase capital vote is also expected to proceed swiftly. We will focus on enhancing our financial structure,” an SHI representative said.

Samsung Group affiliates are key

shareholders of SHI, which is also being viewed as a positive factor. Many industry watchers believe that these key affiliates of Samsung could buy more shares of Samsung Heavy Industries after new stocks are issued on Aug. 10.

Currently, Samsung Electronics is SHI’s largest shareholder, with 15.98 percent of the shares, followed by Samsung Life Insurance with 3.06 percent, Samsung Electro-Mechanics with 2.16 percent and Samsung SDI with 0.38 percent of the company’s shares.

In 2016 and 2018, when SHI initiated over a 1 trillion won capital increase by issuing new stocks, Samsung Electronics bought 204 billion won, Samsung Life Insurance bought 39.1 billion won and Samsung Electro-Mechanics bought up 27.6 billion won worth of stocks.

The local shipbuilding industry has seen a boom this year. Initially, SHI set a 2021 goal of procuring $4.6 billion in the shipbuilding sector and 3.2 billion won in the marine plant sector, however, the company has already secured 42 procurements, just in the shipbuilding sector alone, worth 5.1 billion won, exceeding the initial goal. Orders on hand accounted for 16.2 trillion won, which exceeds the previous record held in 2015. Samsung Heavy also raised its procurement goals for this year, from $7.8 billion to $9.1 billion this year. Industry watchers believe that the rise in oil prices could also benefit procurements in the coming months.

Many industry watchers believe that the local shipbuilding industry will be able to find more procurements for the remaining year and the following year, which could better help Samsung Heavy to recover from its financial troubles.

“Local shipbuilding companies have been showing an increase in procurements. This increase is due to a reduction in competition, so expect more procurements to be made next year,” Park Moo-hyun, an analyst at Hana Financial Investment said.