Institutional investors have dumped their corporate bond holdings of South Korea’s Samsung Heavy Industries Co. amid growing concerns that the company’s first-quarter earnings results would fall short of market expectations following a number of delays in the construction of offshore facilities and plants.

According to multiple sources from the financial investment industry on Wednesday, 80 billion won ($70.6 million) worth of Samsung Heavy Industries’ corporate bonds with a maturity of less than two years were recently traded with a yield that is 1.26 percentage points higher than the average market interest in the over-the-counter market. The average yield on the company’s bonds hit 4 percent, which is generally applied to issues with a rating of BBB+. Analysts noted that Samsung Heavy Industries’ bonds were sold at an unusually low price considering that its credit rating is A+, three notches higher than BBB+ bonds.

With investors dumping tens of billions of won worth of Samsung Heavy Industries bonds, concerns are rising that the company’s first-quarter earnings could be worse than expected. An unnamed official from the bond market said that there are growing worries that Samsung Heavy Industries could incur additional losses in its offshore plant business while the outlook for the country’s shipbuilding industry remains gloomy. Based on market estimates, Samsung Heavy Industries is projected to raise about 50 billion won in operating income in the first three months of the year.

Kim Hong-kyun, an analyst at Dongbu Securities Co., said that Samsung Heavy Industries could log additional losses in the Nigeria’s Egina oil field project it clinched in 2013. Kim added that this could cast a shadow on the company’s recent efforts to save costs by selling non-core assets and reducing workforce.

Analysts also said the delayed construction of several large-scale offshore plants awarded to Samsung Heavy Industries by oil-rich countries might have triggered such a massive selloff. Recently, Malaysia’s Petroliam Nasional Berhad (Petronas), Australia’s Woodside Energy, and Japan’s Inpex Corporation - all involved in exploring and producing oil and gas - have informed Samsung Heavy Industries that they plan to delay offshore plant projects granted to the Korean company for a considerable period of time.

A sharp fall in ship orders is also adding woes to the Korean shipbuilder. Making matters worse, the company is on the verge of losing a floating liquefied natural gas (FLNG) project that has been awarded by Shell Gas & Power Developments B.V. last year. Chung Woo-chang, an analyst at Mirae Asset Securities Co., noted that if the $4.7 billion FLNG project in the Browse Basin gas fields off the northwest coast of Australia is called off, Samsung Heavy Industries’ order backlog would fall by 13 percent.

Reflecting the latest challenges facing Samsung Heavy Industries, the credit rating on its notes fell by two notches to A+ from AA in just one year. There are concerns that the rating will fall further as Korea Ratings Corp. and NICE Information Service Co. have presented a “negative” outlook on the company.

By Kim Hye-soon

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