SEOUL: South Korean shipbuilder Samsung Heavy Industries announced its second rights offering in two years to lessen the risk of tighter credit conditions and forecast a fourth straight year of operating losses, causing its shares to plummet 28 percent.
The $1.4 billion new share issue, which follows a $1 billion issue in 2016, will be used to pay debt as well as to reduce the risk of banks curtailing lending due to its weak earnings prospects, Samsung Heavy said in a statement.
South Korea's three shipbuilders - the world's biggest - have racked up billions of dollars in losses and embarked on major restructuring as customers slashed orders amid a commodities downturn and a drop-off in shipping trade. They are also having to fend off stiff competition from Chinese and Japanese rivals.
Samsung Heavy - the smallest of the three - said in a filing it expected an operating loss of 240 billion won ($220 million) in the next financial year, after an expected loss of 490 billion won this year - the result of weak orders and a failure to reach its targets to cut headcount and other costs.
"Given improving market conditions, we expect sales to recover and to swing to a profit from 2019," it said.
New orders won this year have grown 13 times to $6.5 billion, from $500 million last year. Samsung's outstanding order backlog was worth $20.6 billion for 72 ships up to the end of October compared with $26.7 billion for 90 vessels at the end of December 2016.
Under the rights offering, Samsung Heavy will allocate new shares to existing shareholders with any unsubscribed stocks to be offered to third-party investors. It did not specify how many shares would be issued or at what price.
"Samsung Heavy's loss was expected but the rights issue comes as a shock to me," said Choi Gwang-shik, an analyst at Hi Investment & Securities.
In its last rights issue, it raised 1.1 trillion won by selling shares at 7,170 won apiece to existing shareholders including Samsung Electronics Co Ltd and Samsung Life Insurance Co Ltd. Samsung Electronics is its biggest shareholder with a 16.9 percent stake.
In afternoon trade, Samsung Heavy's share had lost 28 percent to trade at 9,100 won, giving the shipbuilder a market value of about $3.3 billion.
"The rights issue will not solve its liquidity problems. The outlook is not good for Samsung Heavy," said Park Moo-hyun, an analyst at Han Investment & Securities, adding that its shipbuilding capabilities for large commercial vessels lagged rivals Daewoo Shipbuilding & Marine Engineering and Hyundai Heavy Industries.
Daewoo Shipbuilding tumbled 4 percent and Hyundai Heavy slid 6 percent on the Samsung Heavy news.
Park said, however, that while he thought that some Samsung affiliates could also be hurt by the shipbuilder's woes, he did not think of it as an issue affecting the nation's entire shipbuilding sector as the industry is rebounding.
Early this year Daewoo gained a fresh $2.6 billion bailout from South Korean banks after it has built up huge losses from offshore projects and risked missing debt repayments.
($1 = 1,089.8000 won)