Case of Coral Project
It is known that Samsung Heavy Industries virtually won the Coral Project, a US$2.5 billion offshore plant project. The Shipbuilding and Offshore Plant Information Center set up by the Korea EXIM Bank among others are reviewing the project for the issuance of a refund guarantee (RG). The review process means that Samsung Heavy Industries landed the project.
“We are assessing the profitability of an offshore plant project amounting to over US$500 million with external experts,” said a representative of the Shipbuilding and Offshore Plant Information Center on September 19. The center was established by the Korea EXIM Bank, the Korea Development Bank and Korea Trade Insurance Corporation in order to evaluate shipbuilding and offshore plant projects in March. The center makes a decision about the issuance of an RG by assessing the profitability of an offshore project worth over US$500 million.
Refund guarantees are commonly provided in new build vessel transactions. Given that the purchaser will normally be paying for a substantial part of the vessel in advance of delivery actually taking place, the refund guarantee provides a form of security in respect of those installments. A shipbuilding order can be cancelled unless an RG is issued. Usually, shipbuilders apply for an RG after finally signing a deal
“Among offshore plant projects under discussion, it is the Coral Project that reached the issuance of an RG,” offshore plant experts said. “The FID was made and Samsung Heavy Industries is solely negotiating the deal,” they stated. “A review of RG issuance means that in effect, Samsung Heavy Industries landed the project.”
The Coral Project is a US$5.4 billion floating liquefied natural gas (FLNG) project of ENI, a government-run energy company of Italy. The order Samsung took amounts to US$2.5 billion. The contract will enable Samsung Heavy Industries to achieve the half of its 2016 order goal of US$5.3 billion at a stroke.
The point is the profitability of the project. Financial authorities introduced a profitability assessment system because Korea’s three major shipbuilders posted trillions of Korean won in loss in the past. Industry experts say that as Samsung Heavy Industries steadily expressed its will not to win a contract for a low price, they made rigorous and thorough preparations for the matter.
Korea’s three major shipbuilders have not received any offshore plant orders in the third quarter of this year. Their last order is an order for two offshore platforms amounting to about 1.2 trillion won (US$1.04 billion) that Samsung received from Norway’s Statoil in June of last year.