S Korea's Samsung Heavy falls by a quarter on loss forecast
Samsung Heavy Industries shed more than a quarter of its value on Wednesday after announcing plans to raise Won1.5tn ($1.4bn) in a sale of new shares and flagging operating losses for this year and next.
The announcement by the world’s third-biggest shipbuilder damped hopes that big South Korean shipyards are finally emerging from a prolonged slump that has resulted in billions of dollars in losses over the past two years.
Samsung Heavy forecast an operating loss of Won490bn ($449m) for this year and Won240bn next year amid shrinking demand for its new vessels and offshore energy projects. In a regulatory filing, the company said its rights issue would be completed by May 2018.
In response, shares in the company sank as much as 27 per cent to their lowest point since December 2016. The bleak outlook pulled down shares in rival shipyards, with Hyundai Heavy Industries falling 4.3 per cent and Daewoo Shipbuilding and Marine Engineering shedding 3.3 per cent in a broader market that was off 0.3 per cent.
Shipbuilders in South Korea have been under financial strain for years thanks to persistent overcapacity since the 2008 global financial crisis. The country’s shipyards have shed at least 20,000 jobs last year and closed idle docks to ride out the downturn, which has pushed some to the brink of bankruptcy. Daewoo Shipbuilding was saved from collapse by a $2.6bn lifeline from state-run lenders this year.
But the beleaguered industry has shown some signs of recovery this year, aided by an increase in new orders for oil tankers and natural gas carriers as oil prices rebounded. New orders for ships worldwide rose more than 40 per cent in the first half of the year, with South Korea taking 31 per cent of them, closely trailing China, according to industry tracker Clarksons Research.
Samsung Heavy won $6.7bn worth of new orders so far this year after securing just $500m of new orders last year. It posted an operating profit of Won71.7bn in the first nine months of this year, compared with an operating loss of Won193.6bn in the same period last year.
But analysts said the company’s ability to win orders has been constrained as it has been squeezed between bigger domestic rivals and lower-cost Chinese players, and it has been slow to respond to its worsening financial situation.
“Samsung Heavy has been relatively less competitive in winning new orders [for commercial vessels], while Hyundai Heavy and Daewoo Shipbuilding have won many new orders for VLCC [very large crude carriers] and LNG [liquefied natural gas] ships, respectively. This has made its financial situation worse,” said Park Moo-hyun at Hana Financial Investment.
While the rights issue will give Samsung’s Heavy’s liquidity situation a temporary boost, structural improvement is unlikely and the company may have to raise capital again in the near future, he said.
However, he sounded a note of optimism: “Samsung Heavy’s financial difficulty does not represent the industry-wide situation. The global shipbuilding industry is slowly recovering with its profitability improving on higher ship prices. It will be better next year.”
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