The financial regulators asked Samsung to help the group’s shipbuilding affiliate, Samsung Heavy Industries (SHI), update its self-rescue plan.
“The Korea Development Bank (KDB), SHI’s main creditor, isn’t satisfied with details of the self-rescue plans submitted by the shipbuilder. SHI’s biggest shareholder needs to assist it,” a source at the Financial Services Commission (FSC) said Tuesday.
Samsung Group affiliates own a 24 percent stake in the shipbuilder. But the submitted plan doesn’t include a capital injection from the group or the purchase of new shares.
Samsung Electronics is the biggest shareholder of SHI holding 17.62 percent, followed by Samsung Life Insurance with 3.38 percent and Samsung Electro-Mechanics with 2.39 percent.
The source added Samsung Electronics needs to check SHI’s accounts to prove that its cash flow and financial soundness are “safe.”
“Hyundai Heavy Industries (HHI) has lots of assets to sell and that means HHI’s self-rescue plan is persuasive as the shipbuilder’s biggest stakeholder has no responsibility unlike SHI,” said the source.
SHI’s submitted plan to KDB includes raising about 300 billion won in cash by selling stock, company-owned real estate and the Samsung Hotel Geoje.
HHI’s plan seeks to raise up to 1 trillion won in cash by selling core- and none-core assets.
“We want Samsung affiliates to join the restructuring move to take their share of responsibility. If that happens, supportive measures by creditor banks will follow,” said the source.
Despite growing pressure, Samsung is unlikely to help SHI, given the low debt ratio that SHI has, which it sees as manageable, and its high-level of internal cash reserve ― 3.61 trillion won in the first quarter of this year.
The debt ratio of Daewoo Shipbuilding and Marine Engineering (DSME) is over 7,000 percent, while that of SHI is 250 percent. SHI also has 2.08 trillion won in cash-equivalent assets.
“This isn’t an issue in which the group will step in. An additional cash-injection isn’t needed for the time being as today’s struggle that SHI is facing is due to market factors,” said a source at Samsung. He added the group audited SHI’s accounts and management in 2014.
“Reviews on SHI management were completed and it was ordered to stop seeking orders below market prices. Since then, SHI hasn’t been taking orders from ship owners asking for heavy discounts to boost profitability,” the Samsung source said.
The financial authorities are worried about SHI’s heavy exposure in the offshore plant business, which has relatively higher risk than standard shipbuilding.
Mentioning the latest analysis by the Korea Valuation Institute, the FSC source said SHI may face a “serious order shortage” starting next year given this high exposure and the growing possibility for order cancellations.
SHI had an operating profit of 6.1 billion won during the first quarter of this year; however, this is a 77 percent decrease, year-on-year.
SHI didn’t win any significant new orders during the first three months of the year.