Issuing $1.37B Worth New Shares
Samsung Heavy Industries (SHI) announced on December 6 that it expects to post more than 700 billion won (US$640.15 million) in operating losses this year and next year and plans to raise 1.5 trillion won (US$1.37 billion) by selling new shares in a rights offering in its bid to proactively respond to lack of funds.
SHI’s order backlogs stood at US$20.6 billion (22.53 trillion won), or 72 ships, as of the end of October. The problem is that the amount of its orders received last year fell short of 10 percent of US$5.3 billion (5.8 trillion won) of the target for the year and sales to be generated next year amount to a mere 2.7 trillion won (US$2.47 billion) out of US$7.4 billion (8.1 trillion won) of its orders received this year. As shipyards can actually get to work a year or two years after winning orders and designing them, the company is highly likely to suffer both the most severely lack of work and financial difficulties next year.
SHI’s total sales forecast for next year comes to 5.1 trillion won (US$4.66 billion), down 35 percent from 7.9 trillion won (US$7.22 billion) this year. An official from SHI said, “The sales will decrease but the company will continue to shoulder the burden of fixed costs such as labor costs and operating costs. It needs to forecast its sales and increase capital by issuing new stocks in order to minimize shocks on the market. The estimated available funds reached 1.3 trillion won (US$1.19 billion) as of the end of this year and the funds balance is expected to record a surplus of 900 billion won (US$823.05 million) in 2018 again. The company is not in urgent need of money right now but it needs to increase capital by issuing new stocks in its bid to repay loans maturing next year and preemptively deal with financial companies’ reduction in additional loans due to the deterioration of its business performance.
SHI has 660 billion won (US$603.57 million) of corporate bonds maturing next year. The company seeks to get over its looming crisis with 1.3 trillion won (US$1.19 billion) of available funds raised by the capital increase in 2016 and 900 billion won (US$823.05 million) of net cash inflow next year as well as the upcoming paid-in capital increase. It also plans to complete the recapitalization by May next year.
Meanwhile, Hyundai Heavy Industries Co. and Daewoo Shipbuilding & Marine Engineering Co. also feel concern about lack of work next year but they think they will be able to make it through next year without the paid-in capital increase for now. This is because the two companies have been carrying out their self-rescue measures announced in 2015 and 2016, which are relatively more intense than Samsung Heavy, as planned.
Hyundai Heavy Industries Group’s three shipbuilding affiliates – Hyundai Heavy, Hyundai Samho Heavy and Hyundai Mipo Dockyard – secured work of 240 vessels as of the end of October. It is about a year of work considering its annual shipbuilding capacity of 60 ships based on Hyundai Heavy’s own analysis. However, the group reportedly has a good cash flow.
An official from Hyundai Heavy said, “The company has already exceeded 3.5 trillion won (US$3.2 billion) of the scheduled amount of its self-rescue plan and will get an additional 450 billion won (US$411.52 million) when the sale of HI Investment & Securities Co. is completed. We have 2 trillion won (US$1.83 billion) of operating funds every month. We cannot say it is enough but it is not so bad cash flow.”
He added, “Recently, the number of orders for new vessels is gradually on the rise. As the company’s current debt ratio has fallen to a record-low 86 percent, it maintains the physical strengthen that can cope with difficulties even if the market gets worse.”
Daewoo Shipbuilding also say that its self-rescue measures will help the company withstand until the end of next year. Based on its own analysis, the company will have about a year and a half of work. In regard to the financial conditions, an official from Daewoo Shipbuilding said, “We think we will be fine until the end of next year.”
Daewoo Shipbuilding has so far achieved nearly 2.48 trillion won (US$2.27 billion) out of 2.77 trillion won (US$2.53 billion) of the self-rescue plan target by the end of this year, recording the implementation rate of 90 percent. The company’s total self-rescue plan aims to raise 5.9 trillion won (US$5.4 billion) by 2020 through restructuring.