Russian shipowner unilaterally terminates $3.5bn contract with SHI

Samsung Heavy Industries (SHI), one of South Korea’s big three shipbuilders, has been notified by a Russian shipowner that orders worth 4.852 trillion won (about $3.53 billion) have been terminated.

According to the shipbuilding industry on June. 13, SHI announced in a regulatory filing on the previous day that it had received a termination notice for contracts related to 10 liquefied natural gas (LNG) carriers and seven shuttle tankers for the North Sea, ordered by Russia’s Zvezda Shipbuilding Complex (Zvezda) in 2020 and 2021.

“The shipowner unilaterally claimed contract default during negotiations and demanded termination notice and repayment of the advance payment of about 1.112 trillion won ($800 million) plus delayed interest,” SHI said.

“We are currently unable to conduct any financial transactions with Zvezda, which has been designated as a Specially Designated National (SDN). As the termination notice is illegal, we plan to file a lawsuit in the Singapore Arbitration Court to dispute the illegality of the termination and the scope of the repayment while continuing negotiations,” SHI explained.

In 2019, the shipbuilding giant won a contract from Zvezda to build a total of 22 vessels (15 icebreakers and 7 icebreaking shuttle tankers), amounting to approximately 7.84 trillion won ($5.7 billion). Five of these vessels have been delivered to the owner.

This termination involves the remaining 17 vessels. In November 2020, Zvezda signed a contract with Samsung Heavy Industries for the supply of blocks and equipment for 10 icebreaking LNG carriers. In October 2021, another contract was signed for the supply of blocks and equipment for seven icebreaking shuttle tankers, totaling 4.852 trillion won (about $3.53 billion). Zvezda paid an advance of $800 million.

However, just as the design phase began, Russia invaded Ukraine, triggering sanctions against the country. The U.S. Treasury Department’s Office of Foreign Assets Control designated Zvezda as an SDN. Samsung Heavy Industries halted production in August after completing only part of the vessel design and has since been in talks with Zvezda about whether to maintain the contract. Nonetheless, on June. 11., Zvezda notified Samsung Heavy Industries of the termination of the contracts for 17 ships, alleging contract default.

Samsung Heavy Industries plans to take legal action by filing a complaint with the Singapore Arbitration Court. The company is currently investigating the reasons behind Zvezda’s allegations of default.
Source: The Chosun Daily