A drillship built by Samsung Heavy Industries. Provided by Samsung Heavy Industries
Samsung Heavy Industries is selling 4 drillships (oil rigs), which have been considered ‘malicious inventory’, for 1 trillion won. The success of clearing out bad inventory has given momentum to the improvement of the financial structure.
Samsung Heavy Industries held a board meeting on the 21st and announced that it had decided to invest 590 billion won in ‘Curious Crete Institutional Private Equity Private Equity (PEF)’ to sell four drillships. This PEF is a private equity fund in which a number of domestic investment institutions, including Samsung Heavy Industries, participate. The size of the fund is 1.7 trillion won and will be launched next month.
The PEF will purchase four drillships from Samsung Heavy Industries for regarding KRW 1.4 trillion and then sell them back to the market to distribute the proceeds from the sale to investors according to the investment ratio. Samsung Heavy Industries’ PEF stake is 78.7%. Samsung Heavy Industries will first receive 450 billion won in cash from the PEF as the proceeds from the sale, and then the investment profits will be distributed.
Samsung Heavy Industries, which has accumulated a net loss, managed to escape from capital erosion by conducting a free stock issue and a rights issue in a row last year. Nevertheless, the financial structure is weak due to an operating loss of KRW 1 trillion last year.
A drillship is a ship-type facility that can perform oil and gas drilling in deep waters. The construction cost per ship alone amounts to at least $500 million (regarding KRW 610 billion). In the mid-to-late 2010s, ship owners unilaterally canceled contracts for SHI and completed five drillships, but failed to deliver them. This is because ship owners refused to take over as the profitability of offshore oil fields decreased as international oil prices plummeted in 2014.
Since then, the drillship has been reduced to a treasure trove of Samsung Heavy Industries. The reason for not delivering the drillship on time was that it had accumulated a large-scale provision for bad debts, as well as tens of billions of won in maintenance costs every year. However, as international oil prices soared once more and the oil drilling market showed signs of recovery, the mood took a sharp turn.
A Samsung Heavy Industries official said, “The drillship sale will secure regarding KRW 450 billion in liquidity, which will improve financial soundness and recover investment through resale through PEF in the future.” It is meaningful that uncertainty has been resolved,” he said.
Dongwook Kim reporter [email protected]
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