Shipping company HMM completes fund-raising as the government asks Hanjin to review merger.
Plagued with working capital deficits and high long-term debt, Hanjin Shipping and Hyundai Merchant Marine (HMM) continue to struggle[ds_preview] for survival even as the Park Geun-hye administration asserts the two companies should not merge. After two consecutive annual losses, South Korea’s two biggest companies deteriorated into financial difficulties in 2013 and began streamlining operations to raise liquidity.
On 28 October 2015, the government asked Hanjin to review a merger with HMM. Amid a consolidation wave, such a merger would create a large-scale liner operator in South Korea and shake up existing liner alliances.
Hanjin is part of the CKYHE alliance that includes COSCO, ›K‹ Line, Yang Ming and Evergreen, while HMM is part of the G6 alliance that includes Mitsui OSK Lines, NYK Line, APL, Hapag-Lloyd, and OOCL.
COSCO and China Shipping Group (part of the Ocean Three alliance) are to be merged while another Ocean Three member, CMA CGM, will be acquiring APL parent Neptune Orient Lines.
Around the same time, Hanjin did more fund-raising, selling stakes in H-Line Shipping (its divested LNG shipping business) and container terminals in Busan and Gimpo.
HMM did the same, transferring its dedicated bulk businesses and US container terminals to a newly created subsidiary, Hyundai Bulk Line, and securitizing it with convertible bonds worth 247.5 bn KRW (225mill. $).
Except to say that such a union with HMM would be »hard to materialize«, Hanjin Shipping would not elaborate when contacted by HANSA. HMM’s representatives told HANSA that it has raised almost 450 bn $ and that it is not facing a crisis.
But KDB Daewoo Securities analyst Jay Ryu opined that HMM’s manner of asset divestment suggests that Hyundai Group could sell the shipping company. Ryu said, »Hyundai Group’s recent moves could be interpreted as preparations for an attempt to sell HMM while keeping Hyundai Asan and Hyundai Securities under its umbrella.« To this, HMM’s representatives said, »There have been various reports that HMM would be sold. Nothing has been confirmed yet.«
After rumors that the government was pressuring Hanjin and HMM to merge, the Ministry of Oceans and Fisheries issued a clarification: »There is a need to maintain the existence of the two companies when considering the impact a merger could have on South Korea’s import- and export-oriented economy and global shipping alliances, as well as Busan port’s transshipment competitiveness.« Subsequently, the South Korean government has been emphasizing the importance of keeping both companies independent and that any merger would be voluntary.
Nonetheless, it is clear that both companies will continue to struggle in the short term and while even bigger container ships are increasingly necessary to compete effectively, they lack the means to undertake capital investments.
To this end, South Korea’s Ministry of Oceans and Fisheries has begun working with state lenders Korea Development Bank and Export Import Bank of Korea to assist HMM and Hanjin in acquiring ultra-large container ships that would improve their global competitiveness. The Minister Kim Young-suk said, »There’re many ways of leasing ships, such as through bareboat charter following the establishment of funds by for example, Export-Import Bank of Korea and Korea Trade Insurance Corporation.«
However, there are strings attached. The South Korean government launched a 1.2 bn $ fund on 30 December 2015 to help the country’s shipping companies to acquire ships, on condition that the borrowers’ debt-to-equity ratios do not exceed 400%.
Given that Hanjin’s debt-to-equity ratio is 687% as of 30 September 2015 and that of HMM is 980%, they would have to quickly clear their massive debts to access the fund.
Zeng Xiaolin
