Korea Shipbuilding & Offshore Engineering ends fears over stock overhang

Korea Shipbuilding & Offshore Engineering (KSOE), a subholding company for shipbuilding, oil refining and machinery conglomerate HD Hyundai Co. is seeing light at the end of the tunnel.

KSOE has bought back shares of its affiliate Hyundai Samho Heavy Industries, whose IPO slated for this year was canceled, from a private equity fund to dispel fears of stock overhang. 

The nation's top three shipbuilders are also seeing an unprecedented order rally, with Hyundai Samho meeting its annual target after just one month into the new year.

The Financial Supervisory Service of South Korea on Friday quoted KSOE as saying on Wednesday that it paid 409.7 billion won ($333.2 million) in cash to the domestic private equity fund IMM PE to buy back 4.6 million shares of Hyundai Samho equal to a 15.2% stake.

The fund had invested in the shares prior to the company's planned IPO, which was canceled due to a sluggish domestic stock market and no signs of improving conditions.

KSOE and the fund agreed on a cash payment of 266.7 billion won, or part of the proceeds from the sale of their shares, and the remaining 143 billion won for 1.2 million shares by the deadline of Jan. 31 under a plan to issue Hyundai Heavy Industries Co. stocks and payment of the full amount in cash.

The contract was terminated by cash payment, however, as the two sides failed to agree on the stock issuance by the deadline.

Industry pundits consider the overhang threat to Hyundai Heavy Industries stocks resolved. KSOE's position was that the financial damage was insignificant as it had about 2 trillion won in cash, with a company source saying, "We already had the repayment plan in mind so no impact (on pursuit of the business plan) occurred."

Just a month into the new year, KSOE met 24% of its annual order target of $15.7 billion thanks to its massive order for 12 methanol-powered very-large container ships from CMA CGA, a French container shipping company that previously did business with a Chinese shipbuilder. 

Hyundai Samho is handling construction for the CMA CGA project for 2.5 trillion won, an amount equal to 98.5% of its annual order target of $2.6 billion.

Write to Seo-Woo Jang at suwu@hankyung.com