Samsung Heavy Industries Co., world’s third-largest shipbuilder, has asked its main creditor Korea Development Bank (KDB) on Tuesday to roll over 2.9 trillion won ($2.4 billion) worth debt payment to help it fight liquidity problems amid prolonged business slump.

According to multiple sources from the creditor circle and shipbuilding industry on Wednesday, Samsung Heavy Industries sought debt relief from KDB on Tuesday while handing in a voluntary restructuring plan.

The South Korean shipbuilder appealed to KDB that if creditors do not call in 2.9 trillion won worth of loans that need to be paid back in the first quarter of next year, it will be able to normalize its business through self-rescue efforts by cutting workforce, improving efficiency at dockyards, and selling assets. In its own plan, Samsung Heavy Industries highlighted that it has 1.75 trillion won worth of cashable assets, cash, and short-term financial items that can be immediately liquidated. The shipbuilder’s request for debt roll over is seen as a move to prevent itself from turning insolvent by paying back loans at a time when it has been struggling from major setbacks in orders.

KDB is expected to decide whether or not to extend loans after going over the voluntary restructuring plan submitted by Samsung Heavy Industries. There will be no separate meeting of creditors as Samsung Heavy Industries is not under a creditor-led workout program. Samsung Heavy Industries will instead have to persuade each creditor on its own to reschedule remaining debt.

KDB officials confirmed that Samsung Heavy Industries did not seek additional loans apart from debt relief. But if the sluggish business environment continues and the shipbuilder suffers from lack of orders, there can be discussions for creditors to inject fresh funds, they said.

As of now, Samsung Heavy Industries is in a more favorable environment than the other two industry majors - Hyundai Heavy Industries Co. and Daewoo Shipbuilding & Marine Engineering Co . Compared to the two shipbuilders, Samsung Heavy Industries is engaged more in offshore plant business, which allows it to be less affected by the protracted slump in the shipbuilding industry. As of end of April, Samsung Heavy Industries’ order backlog balance was $30 billion, of which 65.3 percent or $19.6 billion was from offshore plant business such as building floating production facilities and drilling facilities. The share of offshore plant business for Hyundai Heavy Industries is 31.3 percent while for Daewoo Shipbuilding & Marine Engineering, 45.3 percent.

Meanwhile, Samsung Heavy Industries is known to have emphasized in its voluntary restructuring plan that it has sufficient cash and cashable assets as well as short-term financial items. As of the end of March, Samsung Heavy Industries has secured 1.03 trillion won worth of cash and cashable assets and also 730.6 billion won worth of short-term financial items. Industry observers, however, note that the shipbuilder won’t be able to keep up if slow business continues. Total amount of cash and cashable assets as well as short-term financial items secured by Samsung Heavy Industries decreased 79 billion won in the first quarter from the end of last year.

Samsung Heavy Industries maintains it won’t run into a major problem as it does not have any financial loans to pay back this year. The shipbuilder has 698.7 billion won worth of corporate bonds to pay back including 400 billion won that matures in February, 2017, and 200 billion won that expires in September, 2017.

As part of efforts to ease liquidity problems, Samsung Heavy Industries sold 14.1 percent of its shares in Doosan Engine Co. last week to raise 37.3 billion won worth of funds. It remains to be seen if the shipbuilder can sell other securities such as the 1.23 percent stake it owns in iMarket Korea Inc. considering the drop in the share prices and need of approval from InterPark Corp.

By Park Yong-beom, Chung Seok-woo

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