Samsung Heavy Industries Begins Financial Structure Improvement... Approval of Free Capital Reduction at Extraordinary General Meeting

[Image source=Yonhap News]

[Asia Economy Reporter Kim Ji-hee] Samsung Heavy Industries has taken steps to improve its financial structure by passing a proposal for a capital reduction without compensation.

On the 22nd, Samsung Heavy Industries held an extraordinary general meeting of shareholders at its R&D center in Pangyo, Gyeonggi Province, where it approved key agendas including a capital reduction without compensation that lowers the par value of common and preferred shares from 5,000 won to 1,000 won. The reduction ratio is 80%. Samsung Heavy Industries plans to convert the 2.5 trillion won reduction in paid-in capital resulting from the capital reduction into capital surplus to resolve concerns about capital erosion.

At the meeting, an amendment to the articles of incorporation was also approved to increase the total number of shares issued by Samsung Heavy Industries from 800 million to 1.5 billion shares. This is expected to facilitate a future rights offering.

Samsung Heavy Industries has faced a capital erosion crisis where total equity was less than capital stock, continuing losses for 14 consecutive quarters including an operating loss of 506.8 billion won in the first quarter of this year. Accordingly, it has taken steps to improve its financial structure through measures such as the capital reduction without compensation. However, supported by an improved market environment this year, Samsung Heavy Industries secured orders worth 5.9 billion dollars in just the second quarter, and its order backlog reached 25.8 billion dollars as of the end of last month.

Jung Jin-taek, CEO of Samsung Heavy Industries, said at the shareholders' meeting, "The capital reduction without compensation by lowering the par value and the increase in authorized shares for a rights offering are measures to proactively overcome upcoming difficulties and secure the company’s financial soundness. Fortunately, since the end of last year, global shipbuilding orders have been recovering and ship prices are clearly rebounding, so the management conditions to leap forward again are sufficiently secured."