SEOUL, KOREA - The share price of Samsung Heavy Industries is on a downward trend after the news that the company's finances are in shambles largely due to taking of below-cost orders in offshore plants. According to Samsung Group sources on April 22, the group's Future Strategy Office conducted an audit in February and found that the company took several large-scale orders at such low prices and did not even record them properly in the financial statements.
The company's shares were traded at 30,100 won at 9:30 am on the 23rd, down 3.37 percent from the previous day's 29,050 won. The audit that began in February is still ongoing after two months. A score of the group's auditors is currently working on finding out the true figures of all contracts.
The main cause of unsound finances has been the excessively aggressive order taking behavior in offshore plant projects. Following the 2008 global financial crisis that took the world's shipbuilding market into a severe downturn, major shipbuilders of Korea started turning their attention to the offshore plant area related to oil and gas exploration.
It was an inevitable choice as the orders for their bread-and-butter business of building containerships and bulk carriers had dried up. The excessively low-cost offers as a way to attract potential clients, combined with inexperience in the offshore plant business, was what brought about the current crisis.
Samsung Heavy Industries, with particular strength in drillships at the time, has also expanded into the same area including floating production, storage and offloading (FPSO) units and floating liquefied natural gas (FLNG) operations. Last year, this area accounted for as much as 27 percent of the company's total sales revenue.
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