Samsung Heavy sells undelivered drillships to PEF

South Korea's Samsung Heavy Industries Co. has sold its four undelivered drillships to a domestic private equity fund for a combined 1.04 trillion won ($840 million), in which it is participating as an investor.

The agreement, announced on Thursday, will mark a new restructuring model led by financial investors for troubled shipbuilders.

Seoul-based Curious Partners is raising 1.07 trillion won for the purchase and other expenses, Samsung said in a filing.

The fund to be raised will break down into 590 billion won in subordinated equity from Samsung Heavy, 160 billion won in senior equity and 320 billion won in borrowing from financial institutions.

The PE firm will later put the ships on the market as oil prices remained high after soaring to $127.98 a barrel early last month.

Drillships, used for offshore drilling of oil and gas wells, have been a headache for Samsung and other shipbuilders over the past few years.

Those vessels, priced at $500 million or more apiece, had been ordered in the early 2010s, with crude oil prices surging above $100 a barrel for the first time ever in early 2014.

But their delivery was canceled or delayed as oil giants suspended deepsea drilling projects after oil prices tumbled to $40 a barrel in the following years.

Consequently, Samsung was left with undelivered drillships: one owed by Pacific Drilling; an offshore driller for a US contractor; two sea drillships ordered by a Norwegian shipping company; and two vessels for a Greek shipper.

Their manufacturing and relevant costs were booked as losses. For their maintenance and repair, Samsung had to spend tens of millions of dollars every year, ending up with heavy operating losses of over 1 trillion won each in both 2020 and 2021. 

Alongside improving its financial structure, Samsung also needs to secure new capital for the development of sophisticated vessels such as autonomous sailing and eco-friendly ships.

Curious Partners is believed to have taken over the four undelivered ships from Samsung on expectations that global oil prices will remain over $70 a barrel.

In December 2021, Samsung signed a $245 million agreement with an unidentified European shipper to deliver one of the four drillships to be taken over by the PEF. The ship had been ordered by the world's largest offshore drilling contractor Transocean Ltd.

Curious Partners specializes in investing in debt-laden companies. In 2020, it injected 150 billion won into HSG Sungdong Shipbuilding Co. at the brink of bankruptcy.

Last month, it exited from the Korean manufacturer of steel blocks and ship frames with a 30% internal rate of return.

Last year, the PE firm raised 150 billion won in a private debt fund.

Write to Jun-Ho Cha and Jeong-Min Nam at chacha@hankyung.com
Yeonhee Kim edited this article.