Oil Spill Hits Samsung Group Stocks
By Park Hyong-ki
Staff Reporter
Shares of Samsung Heavy Industries and other Samsung Group units suffered heavy losses Monday, taking the brunt of the nation's biggest oil spill on the western coast.
A massive amount of oil leaked after an 11,800-ton crane-carrying barge owned by Samsung Heavy Industries collided with a Hong Kong-registered heavy tanker last Friday. The accident contaminated the western coastal area of South Chungcheong Province, causing enormous damage in the area and prompting the government to declare a state of emergency.
On top of the disaster, Rep. Sim Sang-jeong of the Democratic Labor Party and civic groups have asked the Financial Supervisory Commission (FSC) to launch inspections of Samsung Heavy Industries for allegedly creating slush funds. The audit request came in line with claims by Kim Yong-chul, the group's former legal affairs chief, that the group allegedly fabricated accounting books to raise slush funds.
Samsung Heavy closed down 2,700 won, or 6.43 percent, at 39,300 won; Samsung Corp lost 3,100 won, or 4.56 percent, to close at 64,900 won; Samsung Fire & Marine fell 7,000 won, or 2.92 percent, to 232,500 won; and Samsung Securities fell 6,300 won, or 6.77 percent, to 86,800.
Analysts say given Samsung's brand power, such negative events are adding further downward pressure on Samsung stocks.
``Samsung Heavy shares are likely to perform poorly on weak investor sentiment for the time being. But the effect will likely be short-term as the shipbuilder along with the industry is fundamentally sound,'' said Ohk Hyo-won, an analyst of Hyundai Securities.
The analyst added that the oil spill is not going to hurt the company's bottom line. But its shares will be affected by how the events, including the FSC inspection, unfold going forward.
Under related rules concerning oil pollution, an oil carrier that spills oil and contaminates the waters needs to take responsibility and pay compensation of up to 130 billion won through insurances, analysts say. Any additional damage claims are compensated for by the London-based International Oil Pollution Compensation Funds, which covers up to 170 billion won.
Samsung Heavy Industries has subscribed to a policy with its sister firm, Samsung Fire & Marine Insurance for coverage of the oil spill damage worth about 4.5 billion won. Samsung Fire in turn had the policy reinsured to Korean Re, a reinsurance firm. Analysts, therefore, say that Samsung Fire will have to pay a manageable insurance payment for the damage.
``So, if you look at it from this point of view, there's not much burden for Samsung Fire. But it all depends on how the involved parties, including the oil tanker and its insurers, resolve the matter in the near future,'' said Park Sun-ho, an analyst of Goodmorning Shinhan Securities.
He said although there's no ``fundamental'' reason for Samsung Fire shares to fall given that it's able to cover damages, the oil-spill accident has frozen general investor confidence in Samsung Group stocks that are already reeling from the slush fund scandal.