[Funding] Samsung Heavy Industries' Largest Loss in 5 Years, Repeated Private Bond Issuance

[Asia Economy Reporter Lim Jeong-su] Samsung Heavy Industries has issued its fourth private placement bond (private bond) this year. With the worst performance in five years recorded in the first half of this year, it is expected to be difficult to return to the public bond market within the year.

According to the investment banking (IB) industry on the 19th, Samsung Heavy Industries recently issued private bonds worth 25 billion KRW. The maturity is 2 years with an interest rate of 3.77%. DB Financial Investment acquired the private bonds through a special purpose company (SPC), then securitized them into 3-month short-term bonds and sold them to institutional investors.

This is the fourth private bond issuance by Samsung Heavy Industries this year alone. In July, it issued private bonds worth a total of 30 billion KRW with maturities of 1 year 6 months and 2 years. In March and June, it also raised funds through private bonds worth 55 billion KRW and 25 billion KRW, respectively. The total amount of private bonds issued this year is 135 billion KRW.

Samsung Heavy Industries' private bond issuance is not a recent development. It has continued for several years since the deterioration of the shipbuilding industry led to worsening performance. Recently, concerns about further credit rating downgrades have been raised, making a return to the public bond market seem distant.

The last time Samsung Heavy Industries issued public corporate bonds was in 2015. Since 2014, the shipbuilding industry recession caused by the oil price crash led to Samsung Heavy Industries' credit rating plummeting from AA grade to BBB+. The short-term credit rating also fell to A3+.

Samsung Heavy Industries recorded a net loss of 931.3 billion KRW in the first half of this year alone. This is the largest loss in five years since the net loss of 1.144 trillion KRW recorded in the first half of 2015. The company's equity capital, which had increased to 6.75 trillion KRW by the end of 2018 through capital increases and asset sales, decreased to 4.52 trillion KRW after recognizing accumulated losses of over 2 trillion KRW over two years.

The debt burden is also increasing. Borrowings decreased to 2.9 trillion KRW in 2018 but increased by more than 2 trillion KRW to 5.1 trillion KRW in the first half of this year. During the same period, net borrowings also rose from 1.49 trillion KRW to 3.87 trillion KRW.

The short-term repayment burden (short-term borrowings + current portion of long-term debt) that must be repaid or refinanced within one year amounts to 3.66 trillion KRW. Most of this consists of facility loans, Export-Import Bank loans, and trade finance, so refinancing is expected to proceed smoothly. However, private bonds worth 400 billion KRW and commercial papers (CP, including electronic short-term bonds) worth 280 billion KRW are evaluated to have refinancing uncertainties depending on market conditions.

An IB industry official said, "Liquidity will partially flow in the second half as order payments come in while delivering ships," but added, "Due to COVID-19 and other factors, ship orders are not recovering sharply, so it is difficult to expect a steep performance improvement."

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