Samsung Engineering hanging by a thread?

Samsung Engineering's fate may be hanging by a thread, if what industry sources have been predicting for years comes true.

Rumours of the affiliate being merged with Samsung C&T, the trade and construction arm of the conglomerate, are old news. However, Samsung Engineering may eventually lose its identity as it folds into Samsung C&T following the merger.

Overlapping businesses ― mainly in overseas construction projects ― have long been a problem for the pair, with each accusing the other of securing projects by pulling down the prices.

But the group's favour appeared to be with Samsung C&T due to its deep roots within the group: Samsung C&T was originally "Samsung Sanghoe" established by Samsung founder Lee Byung-chull before it eventually became the sizeable global group it is today.

"Sentimental value alone can never be a reason for Samsung to fold or continue a business, but Samsung C&T is more or less the centerpiece for the group and holds much legacy, so it seems quite unlikely for the chairman to disassemble it or place it under Samsung Engineering," said one industry source close to the matter who wished to remain anonymous.

Adding to the list of reasons for keeping Samsung C&T afloat is its stellar performance this year. It posted overseas construction orders of $10.8 billion, a record.

Samsung Engineering, on the other hand, remains in the red with more than 300 billion won in deficits.

The interesting "human" element in all this is that the incumbent Samsung C&T CEO and vice chairman Jung Yeon-joo had previously led Samsung Engineering when the company had performed reasonably well.

Following his move to C&T in 2010, things began to slip, partly due to worsening construction market conditions and also because Jung knew how to beat the competition, even if the rival was "family." At the same time, C&T's numbers started to look up, beginning with the narrowing of unpaid construction orders.

However, some believe Samsung may decide to do away with both C&T and Engineering altogether to create a completely new entity focused in plant engineering and construction.

"There is always the possibility of Samsung deciding to go a completely different way, at least on the outside," said another source.

Audits may soon be due at both Samsung C&T and Samsung Engineering, industry watchers predicted, once the group decides which direction to go.

Samsung Engineering stocks on Monday ended at 87,000 won, up 4.19 per cent from the previous day. The company's stocks more than halved this year compared to the end of last year.

"The company is continuing to lose money from its construction projects, and it seems unlikely for the situation to improve soon," said Kim Hyung-geun, an analyst with Meritz Securities.

Samsung C&T closed at 52,800 won, up 0.38 per cent.

Samsung currently denies M&A plans for the two firms.

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