Samsung Heavy plans overseas plant

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Samsung Heavy plans overseas plant

Samsung Heavy Industries, the world’s third-largest shipbuilder, plans to set up its first overseas facility as it revamps manufacturing after the biggest merger within the Samsung Group.

The company aims to spend about 1 trillion won ($950 million) on the plant by 2017, Chief Financial Officer Chun Tae-heung said in an interview yesterday. Indonesia, Vietnam and Malaysia are being considered for building bulk ships, tankers and smaller container vessels, Chun said.

The company, based in Seoul, plans to focus on making oil-exploration products and larger ships at its domestic operations, and to cut the costs of producing lower-margin vessels by building them overseas.

The revamp comes after Samsung Heavy said this month that it will merge with Samsung Engineering Co. to create a company that can compete more effectively with European rivals Saipem and Technip.

“We believe there will be demand for offshore oil and gas projects in the long term,” said Chun, 56. “We want to make room at our shipyard in Korea to focus more on offshore and building higher-value ships.”

Samsung Heavy expects to finalize the plan on the overseas yard as early as this year, Chun said.

Samsung Heavy fell as much as 1.8 percent to 24,650 won and traded at 24,750 won as of 10:52 a.m. in Seoul trading. The stock has dropped 35 percent this year, compared with a 0.5 percent gain in South Korea’s benchmark Kospi index.

Samsung Group is merging its shipbuilding and engineering units by December as South Korea’s largest conglomerate prepares for possible succession. Lee Kun-hee, the 72-year-old chairman of phone maker Samsung Electronics, has been hospitalized since suffering a heart attack in May, and the heir apparent is his only son, Lee Jae-yong.

As part of revamping the group’s business, the family is planning to take public two businesses to comply with tighter government limits on chaebol and eventually help pay inheritance taxes that could exceed $5 billion. Samsung Electronics also makes phones and home appliances in Vietnam.

Demand for floating drilling and production facilities is expected to increase as oil companies go into deeper and harsher areas to look for new fields. Samsung Heavy expects to win at least $15 billion of new orders in 2015, Chun said.

The company has received $5.5 billion of orders so far this year, it said. Of those, more than half are for offshore products.

Samsung Heavy is building the world’s biggest floating gas production plant for Royal Dutch Shell at its yard in Geoje, South Gyeongsang.

The 2.5 trillion won merger will help combine Samsung Heavy’s offshore expertise and Samsung Engineering’s project management know-how to minimize risks of cost overruns, Chun said. This will be applied to the construction of a $3 billion floating oil production facility in Nigeria, he said.

“The merger is a win-win for both Samsung Heavy and Samsung Engineering in the long run,” said Lee Jae-won, an analyst at Tongyang Securities in Seoul. “For Samsung Heavy, it will open new business opportunities and help it lower costs.”

Samsung Heavy also plans to build modules from the overseas shipyard to be assembled into factories to help Samsung Engineering, which constructs refineries and chemical plants, to cut costs, Chun said.

The deal will also help the shipyard increase the number of engineers for its offshore projects, Chun said, adding that Samsung Engineering has about 1,000 highly skilled engineers who could eventually be put to work for Samsung Heavy.

The company expects sales from offshore operations to double to 8 trillion won in 2020, accounting for about a third of the total 25 trillion won, Chun said.Bloomberg
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