Samsung Heavy in new rights offering to cut credit risks, shares plunge

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By Hyunjoo Jin and Cynthia Kim

SEOUL (Reuters) - 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, prompting a near 30 percent slide in its shares.

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.

On Wednesday, Samsung Heavy's shares fell 29 percent to close at 8,960 won, its lowest level in a year and reducing its market value to $3.2 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.

A Samsung Electronics spokesman said the company had not yet decided whether to subscribe, noting that terms had yet to be disclosed. A Samsung Life Insurance spokesman declined to comment.

Rivals also took a knock on the news with Hyundai Heavy tumbling 6.2 percent and Daewoo Shipbuilding losing 2.8 percent.

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)

(Reporting by Hyunjoo Jin, Cynthia Kim; Addtional reporting by Miyoung Kim; Heekyong Yang and Keith Wallis in Singapore; Editing by Edwina Gibbs)