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Rights offerings

Samsung Heavy launches $900 mn rights issue process

Its 2018 rights issue of 1.4 trillion won yielded 8 billion won in underwriting fees

By Jun 01, 2021 (Gmt+09:00)

A 13,000 TEU container ship built by Samsung Heavy Industries
A 13,000 TEU container ship built by Samsung Heavy Industries
Samsung Heavy Industries Co. has begun the process to raise 1 trillion won ($900 million) in a rights offering, in what is set to be its first share issue in three years.

The South Korean shipbuilder recently sent a request for proposals including a rights offering plan to domestic brokerage companies to select underwriters, according to investment banking sources on June 1.

Once the capital raising plan passes at its general shareholders' meeting set for June 22, Samsung Heavy will speed up the rights issue process. That will become the company's first share offering since it sold 1.4 trillion won worth of new shares in 2018.

Samsung Heavy, the world's third-largest shipbuilder, suffered 14 consecutive quarters of losses until the first quarter of this year.

Weighed by an industry-wide sharp decline in new shipbuilding orders over the past few years and rising steel prices, it reported an operating loss of 501 billion won during the January-March quarter. First-quarter sales posted a double-digit drop to 1.5 trillion won from a year earlier.

But brokerage companies seem keen to win the mandates, which are expected to generate as much 8 billion won ($7 million) in fee income, as the 2018 offering did, according to the sources.

In 2018, Samsung Heavy's rights issue bookrunners -- Mirae Asset Securities Co., Korea Investment & Securities Co. and NH Investment & Securities Co. -- each walked away with 1.9 billion won in fee income.

Other co-underwriters -- Shinhan Financial Investment Co., Hanwha Investment & Securities Co. and DB Financial Investment Co. -- each earned 800 million won in commissions.

In addition to the fee income, the planned rights issue gives the domestic brokerage houses a chance to build a track record in managing a large-scale rights issue, as well as strengthening their ties to the country's largest conglomerate.

Given Samsung Group's rare appearances in capital markets compared to other Korean conglomerates, winning a mandate from a Samsung unit is expected to raise the underwriters' chances of winning similar deals going forward.

"Having a track record of underwriting a large-scale rights offering of a Samsung Group unit would be a huge asset and increase the likelihood of winning similar deals not only from Samsung but also from other companies," said one of the IB sources.

In terms of new orders received, it has been smooth sailing for Samsung Heavy since the last quarter of 2020. On Tuesday, the company announced a 529 billion won order received by an Asia-based shipper to build four container ships, driving its shares 5.3% higher to nearly a one-month closing high of 6,370 won.

Write to Jin-seong Kim at jskim1028@hankyung.com

Yeonhee Kim edited this article.

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