Samsung Electronics plans to buy new shares of Samsung Heavy Industries (SHI) to prevent the ailing shipbuilding affiliate from suffering a liquidity crunch, Samsung officials said, Wednesday.

“Samsung has no plans to abandon the shipbuilding business given an increased possibility for a turnaround after self-restructuring programs,” a Samsung official said. “Samsung Electronics will take part in SHI’s rights issue.”

But he did not disclose the investment’s exact amount.

Samsung Electronics has been asked by the Korea Development Bank (KDB) and other SHI creditors to come up with plans to support the shipbuilder, details of which will be decided in the third quarter of this year.

“SHI plans to launch a rights issue to raise some 1-1.3 trillion won,” the official said.

He excluded the possibility of Samsung Electronics Vice Chairman Lee Jae-yong using his personal wealth to buy shares in SHI.

Samsung Group affiliates have a combined 24.08 percent stake in SHI, with Samsung Electronics holding the largest, 17.62 percent.

Samjong KPMG recently submitted the results of its due diligence on SHI to the Samsung affiliate and the shipbuilder’s main creditor, KDB.

The consultancy said SHI is unlikely to suffer any serious liquidity shortage over the next four to five years given a sign of market recovery and an increased demand for value-added vessels.

SHI is close to winning a $2.5 billion order to build a floating LNG vessel for Italian energy company ENI, the company said.

“SHI’s top management was notified that the company’s self-rescue packages, including a plan to issue new shares, will keep the shipbuilder afloat,” a KDB official said.

SHI’s self-rescue fund-raising plan of up to 1.5 trillion won by selling non-core assets and cutting employees was earlier approved by the KDB.

As of the first quarter of this year, SHI had 1.09 trillion won in cash-equivalent assets; however, the amount of debt with a maturity of March next year was known to be 2.94 trillion won.

“SHI feels a sense of urgency in liquidity as the delivery of six drill ships has been delayed,” Korea Investment analyst Lee Kyung-ja said. “It should fill in the void in cash by launching a rights issue.”

To revive the country’s three main shipbuilders — including Daewoo Shipbuilding and Marine Engineering (DSME) and Hyundai Heavy Industries (HHI) — Seoul recently announced an 11 trillion won fund to help lenders absorb losses. SHI, hit by a slide in oil prices which have more than halved in the past two years, is struggling with big losses and debts.

Source: Korea Times