Financial Structure to Improve
Samsung Heavy Industries (SHI) will sell off four drill ships, an inventory that has been hurting the company's bottom line, to a private equity fund for one trillion won.
The shipbuilder announced on April 21 that the four drill ships will be sold to Curios Crete Institutional Private Equity Fund (PEF), a 1.07 trillion won fund to be launched next month by a group of domestic institutional investors. SHI said it will also participate in the fund by investing 590 billion won.
The PEF will purchase the four drill ships for about 1.04 trillion won, sell them back, and distribute the proceeds from the sale to investors according to the investment ratio. SHI's stake in the PEF is 78.7 percent. SHI will first receive 450 billion won in cash from the PEF.
SHI managed to avoid capital erosion by carrying out capital increases in 2021. Nevertheless, its financial structure remains fragile, as its operating loss exceeded one trillion in 2021.
One drill ship costs at least US$500 million to build. SHI currently has five drill ships that had been completed years ago but not delivered to clients. These drill ships are a headache for SHI because it has to set aside large loss provisions and bear maintenance costs, which amount to tens of billions of won per year.
However, as international oil prices surged again and the oil drilling market showed signs of a recovery, the market environment took a sharp turn.