The far-reaching impact of U.S. sanctions against Russian interests has led to the cancellation of a substantial $4 billion shipbuilding agreement between South Korea's Samsung Heavy Industries and Russia's Zvezda shipbuilding complex. The unilateral decision by the Russian client to terminate the contract comes after nearly two years of escalating sanctions imposed by the U.S. and South Korea, with the U.S. recently targeting Arctic oil operations.
In a stock exchange filing, Samsung Heavy Industries stated, "The Russian client unilaterally claimed that the contract was not fulfilled during a negotiation process." The company views the contract termination notice as illegal and intends to file a complaint with the Singapore Arbitration Court to contest the illegality of the termination and the scope of return while continuing negotiations with the Russian client.
Samsung Heavy Industries and Zvezda have a long-standing partnership, with the Korean shipbuilder celebrating a series of high-profile agreements between 2019 and 2021 to design and deliver blocks for tankers that would be completed at Zvezda. The total contracts encompassed 22 vessels with a combined value of approximately $5.7 billion.
However, the increasing sanctions imposed after Russia's invasion of Ukraine in 2022 hampered the progress of the 2020 and 2021 agreements. While five vessels under the 2019 contract were delivered, competitor Daewoo Shipbuilding canceled three contracts with the Russians in 2022, citing failure to make installment payments. Samsung Heavy Industries initially sought to continue its projects but invoked Force Majeure in 2022, suspending the design work for 10 LNG carriers and seven shuttle tankers, valued between $3.7 billion and $4.2 billion.
The designation of Zvezda by the U.S. in February 2024 blocked Samsung from working with the Russian shipbuilder, leading to further negotiations with the Russian shipowner. However, on June 11, Zvezda filed a notice demanding the termination of the contract and the return of $800 million in installment payments already advanced to Samsung Heavy Industries, along with interest.
The termination notice coincided with the U.S. targeting Russia's planned LNG projects with new sanctions earlier this week. The sanctions included Zvezda, expanded the listing on three Arctic LNG tankers, and targeted a total of seven vessels tied to the LNG operations.
In response to the termination notice, Samsung Heavy Industries stated in its stock exchange filing that it plans to dispute the termination and seek arbitration. The company remains committed to protecting its interests and finding a resolution to the dispute through legal channels and ongoing negotiations with the Russian client.
KRX: 010140.KS
Price: KRWR5,890
Change: - 2.5%
Samsung Heavy Industries' stock is currently in a downtrend, reflecting the market's concern over the terminated shipbuilding contract and the potential impact on the company's financial performance. The stock has found support at the KRW5,500 level, while resistance is observed at KRW6,200. The stock is trading below its 50-day and 200-day moving averages, confirming the bearish trend. The MACD indicator is negative and diverging from the signal line, suggesting strong downward momentum. The stock has recently broken below the 38.2% Fibonacci retracement level, which could act as a potential resistance level in case of a rebound. The stock is trading near the lower Bollinger Band, indicating a potential oversold condition. However, the strong downtrend suggests that the stock may continue to face pressure in the near term.Overall, the technical analysis suggests a negative outlook for Samsung Heavy Industries' stock, influenced by the termination of the $4 billion shipbuilding contract and the ongoing dispute with the Russian client. Investors will closely monitor the developments in the arbitration process and the company's ability to mitigate the financial impact of the terminated contract.
