[Funding] Samsung Engineering Secures 210 Billion KRW through Securitization of Samsung Electronics Construction Receivables

[Asia Economy Reporter Lim Jeong-su] Samsung Engineering has securitized the construction fees receivable from Samsung Electronics for the Pyeongtaek semiconductor plant, raising 210 billion KRW in funds. Earlier this year, Samsung C&T also raised large-scale funds using the same method, continuing the trend of two Samsung Group construction affiliates securing funds through the securitization of Samsung Electronics construction receivables.

According to the investment banking (IB) industry on the 9th, Samsung Engineering recently secured liquidity worth 210 billion KRW under the lead of BNK Investment & Securities. BNK Investment & Securities transferred part of the rights to receive construction payments from Samsung Electronics to a special purpose company (SPC) it established, and the SPC issued asset-backed short-term commercial papers based on these receivables to raise funds.

Accordingly, Samsung Engineering and Samsung C&T have raised over 800 billion KRW in total this year through the securitization of Samsung Electronics construction payments. Samsung C&T raised 605 billion KRW in January through a similar structure, with Yuanta Securities acting as the lead underwriter at that time.

Samsung Electronics construction payments are considered highly stable assets for repayment, as Samsung Electronics (AAA), which holds the highest credit rating in Korea, has agreed to pay construction receivables to its affiliated construction companies. For the Samsung Group construction affiliates raising funds, this allows them to convert construction payments into cash earlier and reduce interest costs associated with financing.

Samsung Engineering Mexico Project Site

Samsung Engineering has achieved about 30% of its total sales through orders for Samsung Electronics plant construction. These are mainly affiliate projects in the non-chemical plant sector. In 2019, 32.60% of total sales and 28.68% of cumulative total sales as of the third quarter of last year came from plant construction for Samsung Electronics.

Sales to Samsung Group affiliates, including Samsung Display and Samsung Biologics, approach around 50%. As of the end of the third quarter, the largest affiliate construction order was the Samsung Display Tangjeong plant ‘K-PJT’ worth 4.366 trillion KRW. The Samsung Electronics Pyeongtaek plant ‘P2-PJT’ construction follows with a total order amount of 3 trillion KRW.

From 2013, Samsung Engineering suffered losses amounting to trillions of KRW over about three years in Middle East chemical plant projects, which deteriorated its financial condition and even led to a state of capital erosion at one point. Amid these difficulties, orders from group affiliates have served as a revenue source to offset losses from overseas projects. They have also contributed to securing funds when financing became difficult due to credit rating deterioration.

Samsung Engineering is reported to have conducted the securitization of construction payments this time as well to use the funds for operating capital and other purposes. An IB industry official said, "Due to large-scale overseas project orders recently in places like Mexico, the need for operating funds has increased significantly," adding, "Because of this, a relatively large-scale securitization of construction payments was carried out."

The official evaluated, "Samsung Engineering’s financial structure, which had worsened due to large losses in overseas projects, has improved significantly through capital increases and business normalization. However, since it has not yet fully restored its ability to raise funds through public bond issuance, affiliate construction orders still play an important role as a good financing method."

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