Sam­sung’s fi­nan­cial cri­sis and mat­ters aris­ing

Weekly Trust - - Views - Abubakar Aliyu-Us­man Aliyu-Us­man wrote in from Abuja.

In De­cem­ber 2017, the Chief Ex­ec­u­tive of Sam­sung Heavy In­dus­tries, SHI, Park Dae-young re­signed from the world third largest ship­builder. Dae-young threw in the towel fol­low­ing fi­nan­cial losses that cost the com­pany about a third of its mar­ket cap­i­tal­iza­tion. The CEO ap­peared left with no choice as SHI un­der his watch ac­cord­ing to Fi­nan­cial Times, fore­casted losses, not only in 2017 but 2018.

In re­ac­tion, shares of the Korea gi­ant dropped a stag­ger­ing 27%, the low­est since De­cem­ber 2016. But the trou­ble of the Korea based cor­po­rate gi­ant did not start in 2017. It in­deed dates back to the 2008 global fi­nan­cial cri­sis. Since then, Sam­sung has strug­gled.

Be­tween 2010 and 2013 how­ever, hope came the way of Sam­sung. This was when To­tal Up­stream Nige­ria Lim­ited, TUPNI, in joint ven­ture with the NNPC, called for ten­der for the US$3.1 bil­lion con­tract for the con­struc­tion of the Float­ing Pro­duc­tion Stor­age Of­fload­ing, FPSO for the Egina deep wa­ter oil field.

Per­haps haunted by its dwin­dling for­tune, Sam­sung seemed, from the start, to be driven by quest for profit. Take for in­stance its first is­sue with LADOL. The partners had agreed that if their ten­der was suc­cess­ful, a joint ven­ture to be known as SHI Mega Con­struc­tion and In­te­gra­tion Free Zone, SHI MCI- FZE would be set up. The well ap­plauded vi­sion was for this com­pany to con­struct and own the up­graded fab­ri­ca­tion and in­te­gra­tion fa­cil­i­ties at LADOL with 80% own­er­ship by LADOL and 20% by Sam­sung.

This own­er­ship struc­ture was based on the fact that the up­grade of the fab­ri­ca­tion and in­te­gra­tion yard at LADOL was one of the lo­cal con­tent fa­cil­i­ties ap­proved by the Nige­rian Con­tent De­vel­op­ment and Mon­i­tor­ing Board, NCDMB, and com­mit­ted to by To­tal for the Egina FPSO con­tract.

For this rea­son, the Egina FPSO con­tract set forth a pro­vi­sion for To­tal to pay Sam­sung US$214 mil­lion for the up­grade of the fab­ri­ca­tion and in­te­gra­tion fa­cil­ity, as a con­trac­tor to To­tal, in ful­fil­ment of To­tal’s Lo­cal Con­tent obli­ga­tions and com­mit­ment to the Nige­rian reg­u­la­tors. It was sim­ply like a sub-con­tract to which Sam­sung was sim­ply paid to ac­tu­al­ize as a con­trac­tor. The US$3.1 mil­lion Egina FPSO con­tract there­fore in­cluded the US$214 mil­lion for the up­grade of the fa­cil­i­ties at LADOL.

The dead­lock that fol­lowed the partners’ dis­agree­ment led to Sam­sung pur­port­edly ter­mi­nat­ing the part­ner­ship with LADOL. LADOL went to court to seek re­dress. And so LADOL bore its pain as it lost al­most 80% of its shares in the fa­cil­ity af­ter a res­o­lu­tion of its dis­pute with Sam­sung out­side the court.

But by 2018, jus­tice came to pre­vail. At the pub­lic hear­ing of the Nige­rian Se­nate AD hoc Com­mit­tee in­ves­ti­gat­ing the lo­cal con­tent el­e­ments of the Egina pro­ject, it emerged for the first time that To­tal had paid Sam­sung about US$214 mil­lion for the up­grade of the fa­cil­i­ties. To­tal, in fact, ac­cepted that the US$214 mil­lion was in­cluded in the US$3.1 bil­lion Egina FPSO con­tract.

On April 30, 2018 pre­cisely, Sam­sung is­sued No­tice of Dis­pute against To­tal, re­quest­ing a con­found­ing vari­a­tion of US$1.6 bil­lion. By July 12, 2018, Sam­sung had served To­tal No­tice of Pre-Sus­pen­sion of Work, stress­ing its in­ten­tion to stop work un­less To­tal paid, pronto, a vari­a­tion of US$500 mil­lion.

Al­though an Ar­bi­tra­tion has been planned for Lon­don and To­tal, had agreed to con­sider pay­ment of US$800 mil­lion, Sam­sung ap­peared des­per­ate to get at least US$500 mil­lion even be­fore the ar­bi­tra­tion. Ex­actly six days af­ter its case was thrown out, Sam­sung re­turned to the Fed­eral Court once again. This was on Au­gust 6. It was seek­ing the same in­junc­tion to stop To­tal from ter­mi­nat­ing its con­tract and mov­ing the Egina FPSO from LADOL un­til the con­clu­sion of the ar­bi­tra­tion over its vari­a­tion de­mand.

On Au­gust 29, the Fed­eral High Court again ruled against Sam­sung and threw its case out. And this deep le­gal lac­er­a­tion was com­ing af­ter their case at NAPIMS had ended in a fiasco. NAPIMS in a terse state­ment had given Sam­sung un­til Fri­day, July 24, 2018, to launch the FPSO from LADOL or face ter­mi­na­tion of their con­tract and 10 year ban from work­ing in Nige­ria.

But Sam­sung is tena­cious. They are hop­ing that 2019 elec­tions may usher in a new and more friendly lead­er­ship, where their ‘con­nec­tion to the seat of power’ is as­sured and where they would in­deed be in a solid stead to call some shots. This gov­ern­ment to come, they eerily be­lieve would then com­pel NNPC/To­tal to pay them their pur­ported vari­a­tion of US$1.6 bil­lion. Can Sam­sung count on this?

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