Samsung C&T, Raises 456 Billion KRW through 'Samsung Electronics Construction Payment Securitization'

Proactive Liquidity Securing for Long-Term COVID-19 Preparedness
Possibility of Expanding Stakes in Key Subsidiaries Including Samsung Electronics Raised

[Asia Economy Reporter Lim Jeong-su] Samsung C&T, the de facto holding company of Samsung Group, has raised 456 billion KRW by securitizing construction payments (accounts receivable) to be received from its core affiliate Samsung Electronics. This means that the construction payments to be received according to the progress of construction work were converted into cash in advance, drawing attention to the background of liquidity securing.

According to the investment banking (IB) industry on the 23rd, Samsung C&T recently issued securitized bonds worth 456 billion KRW under the management of BNK Investment & Securities. The underlying assets of the securitized bonds are construction payment claims held through construction contracts with Samsung Electronics. Samsung C&T secured liquidity by using the construction payments to be received from Samsung Electronics as collateral. When Samsung Electronics settles the construction payments, Samsung C&T prioritizes repayment of principal and interest on the securitized bonds to investors.

It is understood that Samsung C&T is currently carrying out construction work after receiving orders worth several trillion KRW from Samsung Electronics. As Samsung Electronics' semiconductor super-gap strategy rapidly increased facility investment, Samsung C&T's order volume also surged. Samsung C&T is currently constructing Samsung Electronics’ Pyeongtaek Memory Semiconductor Plant 2, Hwaseong semiconductor line, and Xi'an Memory Semiconductor Plant 2 in China. Related industries estimate that last year, the proportion of affiliate sales in Samsung C&T exceeded 50%.

As of the end of the third quarter last year, sales generated from orders received from Samsung Electronics by Samsung C&T amounted to approximately 3.22 trillion KRW. This is an increase of over 1 trillion KRW compared to 2.12 trillion KRW in sales to Samsung Electronics during the same period in 2018. The balance of held receivables is 1.2 trillion KRW, and after deducting liabilities of 240 billion KRW, the net receivables are estimated to be around 960 billion KRW. In the fourth quarter of last year, sales from Samsung Electronics reached 1.3629 trillion KRW.

The IB industry views Samsung C&T’s securitization of construction payments as a proactive liquidity securing measure. It is interpreted as a preparation against tightening financial markets caused by the COVID-19 pandemic. A representative of the managing firm stated, "We understand that funds were raised to secure cash in advance at low interest rates in preparation for the COVID-19 situation."

Samsung C&T has raised a significant portion of funds through corporate bond issuance but has not issued public corporate bonds since 2017. Although its credit rating is AA+, it has been unable to enter the public bond market due to the prolonged accounting fraud controversy involving Samsung Biologics and the investigation into Vice Chairman Lee Jae-yong’s alleged illegal succession. Instead of public bonds, it has mainly relied on long- and short-term loans from domestic and foreign banks to secure funds.

Some speculate that after securing maximum liquidity, Samsung C&T might purchase shares of key subsidiaries. Due to the sharp decline in affiliate stock prices caused by the COVID-19 crisis, it is analyzed that Samsung C&T is facing an opportune moment to expand affiliate control.

Samsung C&T holds shares in affiliates such as Samsung Electronics (5.0%), Samsung Heavy Industries (0.1%), Samsung Engineering (7.0%), and Samsung SDS (17.1%). Samsung Electronics’ stock price fell from a peak of 62,800 KRW per share in January to 42,300 KRW on this day. Its market capitalization dropped from over 370 trillion KRW to 255 trillion KRW. Samsung SDS, which once traded above 200,000 KRW per share, was traded around 137,000 KRW on this day.

Meanwhile, Samsung C&T achieved consolidated sales of 30.762 trillion KRW and operating profit of 867 billion KRW last year. While sales were similar to those in 2018, operating profit decreased by 21.5% due to one-time costs in the construction sector and weak raw material prices.

This content was produced with the assistance of AI translation services.